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Building area : Gross—102,500 sq. ft. Net—78,300 sq. ft. 34% of space for postal use.

Status of design: Design stopped in August 1970 at tentative stage due to Post Office withdrawal; region 2 was authorized on July 2, 1971 to negotiate A/E contract for reduced project.

Date of postal withdrawal : May 15, 1970.
Remarks: Reduced project and revised prospectus being developed.

Mr. KREGER. The building of 102,000 square feet was planned there, with a net of 7,300 square feet, 34 percent of which was for postal use. The design was stopped in August of 1970 at the tentative stage, because of the fact that the Post Office withdrew.

GSA negotiated a contract for a reduced project. The reduced project is being developed at the present time.

Mr. WRIGHT. Now, I want to be sure I understand what is being said here.

The Postal Service would have used 34 percent of the space in the Charlotte Amalie project, and yet its withdrawal causes us to come back for a reduced project and revised prospectus which, as yet, has not been submitted to the committee?

Mr. KREGER. That is right.

Mr. WRIGHT. Are you aware that at or about the time of postal withdrawal, options were taken by the Postal Service on other land in Charlotte Amalie ?

Mr. KREGER. No, sir.
Mr. WRIGHT. You are not aware of that?
Mr. KREGER. No, sir.

Mr. WRIGHT. The Chair has been advised, somewhat informally, that in Charlotte Amalie, the Post Office has taken options on other land.

Mr. KREGER. Let me read from a May 5 letter, signed by the Postmaster General.

Inasmuch as this project has a low priority on your construction schedule. and our space requirements have increased considerably since the approval of the prospectus. your site is inadequate to accommodate the total space needs. We therefore plan to proceed with the construction of a new leased postal facility, but will retain a station either in the existing or in the new Federal building to be constructed by GSA. We shall furnish you our space requirements for this station at an early date.

That does not speak to the acquisition of sites, but I think it might lead to the construction.

(Mr. Gray assumed the chair.) Mr. GRAY. How big is your Charlotte Amalie site, Mr. Kreger? Mr. KREGER. The site is 77,737 square feet.

Mr. GRAY. Is there space available contiguous to the property, or are you familiar enough with it to know?

Mr. KREGER. I do not have that answer. We can furnish that to you, Mr. Gray.

Mr. GRAY. Did you know that the Post Office has acquired, on a 45year lease, about 3 acres?

Mr. KREGER. No, sir.

Mr. GRAY. That is the size of the property leased, three and a half acres.

Mr. KREGER. I am informed that there was not that much available site around the land that we have.

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Mr. Gray. I have been there and have seen your Governmentowned site, and there is ample acreage that can be acquired.

Mr. KREGER. I have never been there, Mr. Gray.
Mr. Gray. You may proceed.

Mr. CONSTANDY. Mr. Kreger, we would now talk about the second sheet on that spreadsheet, with the 18 projects. Would you refer to the material that you gave me in your book on that, and we will just discuss that now.

I think the 18 projects lend themselves to discussion in total, do they not, more or less, and you can isolate a lot of them. You have what you call a statement relative to these. Could you just read that?

Mr. KREGER. These projects were originally submitted and approved by the Congress for direct Federal construction. They are included in the fiscal 1972 budget, however, and, as part of our proposed leaseconstruction proposal.

Of the 18, as we discussed before, Elkins, W. Va., and Oxford, Miss., have been since funded by the Congress. There are no leaseconstruction projects in which the Postal Service plans now to withdraw, no others, to our best knowledge.

Now, of the 45 projects, taking out the 18, of the 27 remaining that are in our proposed lease-construction program, there are five in which the Post Office plans to continue to participate. They are Roanoke, Va.; Akron, Ohio; Dayton, Ohio; Santa Ana, Calif.; and Van Nuys, Calif.

Mr. CONSTANDY. All right. I think we should recognize that the General Services Administration, on February 12, 1971, in a letter from Mr. Kreger to the Speaker of the House, Mr. Albert, transmitted a proposal relative to taking 45 projects which had been authorized by Congress for Federal construction and ownership, and having the land and site sold to a private owner who would then construct the buildings, and they would be leased back to GSA; is that correct?

Mr. KREGER. Mr. Constandy, I have a statement here on our legislative proposal.

With the chairman's approval, I would like to submit it for the record.

Mr. GRAY. Without objection, it is so ordered.
Mr. CONSTANDY. That would be exhibit 2.
(The information referred to follows:)

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EXHIBIT 2

GENERAL SERVICES ADMINISTRATION, PUBLIC BUILDINGS SERVICE

LEASE CONSTRUCTION LEGISLATIVE PROPOSAL

The backlog of more than $1 billion in approved and authorized buildings projects has caused GSA to prepare this proposed new program in order to satisfy the needs of hundreds of U.S. cities to have new Government buildings, or existing ones expanded. The needs of the public to be served by their Government adequately, efficiently and economically require the construction of these projects which range from major new Federal office buildings to small border stations.

With the existing pressures and demands placed on Federal budget dollar expenditures, GSA has determined that an alternate approach to direct Fed

eral construction financing is necessary. The lease-construction method which is proposed by this legislation has several particular advantages which are listed below. The major departure in this proposed legislation is that it would authorize the sale of Government-owned sites and designs to private entrepreneurs who would build for long term lease to the Government.

Major advantages of this proposal follow :
1. The land and building will remain on local tax rolls.

2. The Federal Government will get urgently needed new space more rapidly. Collocation and consolidation of agencies in this space will promote efficiency.

3. The Federal Government can invest the construction funds (as well as site and design income) in other high priority programs.

4. Costs of this new space would be reflected in agencies' and GSA's annual budgets.

5. New and up-to-date buildings would be available to the Federal Government (erery 20 years, if necessary).

The history of GSA's direct Federal construction appropriations shows that we have been able to average appropriations totalling only $115 million per fiscal year since 1959; we now have a backlog of authorized and needed projects in excess of $1 billion. Without lease construction, this backlog could not be liquidated in less than 10 years at the past rate of appropriations. In these needed new buildings, there is space required for the U.S. Courts, as well as a variety of other Federal agencies. Without the urgently needed modern office space, Government activities continue to operate inefficiently, costing the Federal Government many more millions of dollars and adversely affecting the delivery of services to the taxpayer.

As each year goes by, the cost of construction continues to escalate, and we can calculate an additional cost of at least $45 million for each year that the buildings in this proposed program are delayed. The savings that would result from increased efficiency due to consolidating 29,000 employees in approximately 500 scattered locations have been estimated to be in excess of $50 million for the buildings in this program.

Without this program, GSA will be forced to continue to lease space in small increments to take care of the most pressing and immediate space needs of Federal agencies. Such action results in high cost leases and a continued dispersal of Government activities in widely scattered areas with resulting inefficiencies of operation. Whenever a new facility is authorized, and construction does not start soon thereafter, the Federal Government considers each expenditure for the old facility very carefully. We delay making improvements in old Government facilities because we expect to vacate them in the near future for the new facility. For activities currently in leased space and in need of expansion, we do not attempt to consolidate them in another leased location because we are looking to construction of the new facility. Thus we take care of expanding needs by small short term leases, often at fairly high unit costs per square foot. Continued inability to start construction on these new facilities, therefore, perpetuates, and even worsens, the poor space situation.

In recent years it has become increasingly evident that lease-construction of space can be more economical than direct Federal construction, and it is even more evident that lease-construction of buildings for long term leases is certain to carry with it lower unit costs for rent than individual short term leases. This is particularly true when other costs, such as taxes paid to state and local governments, and the current cost of money investment, are given full consideration. GSA will conduct a full scale economic analysis of each project to determine the most favorable method to be followed in each case. Even if the calculations indicate only a slight difference in costs, the lease-construction method would be preferable because it would keep the property on the local tax rolls, and there would be other indirect cost benefits.

The precise methods of operations under this program have not yet been completely determined, but there are several methods which have been considered.

Under the proposed legislation, we can sell the Government-owned sites to the developer, and the method of payment for those sites can be handied on a case-bycase basis depending upon the offers received. The designs can be sold to the developer at cost and the buildings can be constructed in accordance with those designs or with inherent quality and aesthetics equivalent to our designs. Successful contractors will be given the choice of using the original Government contract architect-engineer or using their own selection of an A-E firm. Before going to the market, all designs will be reviewed for currency in accordance with needs, consistency with local building codes, zoning, etc.

The soliciting of offers and awarding of contracts might be accomplished first by asking for preliminary confidential proposals, and then issuing solicitations for offers to all potential offerors. We might use formal advertising in some instances and negotiation in others.

The projects are deemed to have sufficient geographical dispersion not to have a significant impact in the money market or construction market, in any single geographical area.

Under current legislative authority, GSA can enter into a contract for a maximum 20 year lease (with option to renew), and the building would revert to the owner at the conclusion of the lease term.

This lease construction program contains all 45 projects for which GSA will have contract capability in FY 1972. With regard to the future, GSA's program will depend upon the experience gained with this program for FY 1972 on economic conditions in subsequent years and on possible changes in industry methods.

In the meantime, GSA will continue to acquire sites and continue to design buildings, at least through the tentative stage, as new and additional needs for building are developed. Only in this way could we avoid a lag in planning and designing buildings needed after 1972.

Historically, the GSA has attained its space needs through Government construction or by rental of privately owned space. With the average appropriations falling way behind authorized and needed projects, the ever-expanding need for modern Government building facilities has been met through leasing from private ownership. With appropriations for Government office construction space falling further behind in the foreseeable future, the necessity for leasing of Federal facilities will continue and increase.

In the interest of better leasing and rental economy, it is imperatively important that the Administrator be given every device, tool, and technique commonly in present use by private business whereby there may be negotiated the most advantageous leasehold for the United States Government. Under the terms of this program, GSA will be in a position to provide much needed space and modern facilities by lease-construction agreements which would be more advantageous to the Government than to provide such space through term lease agreements. This would enable the Government to take advantage of competitive open-market construction of buildings for office space purposes; take advantage of long-term amortization ; take advantage of the use of private capital, obtain control of the best site available for the purpose desired and thus eliminate option speculation, besides getting a facility specifically designed for the purpose intended since we would use existing Government designs. It is not possible to estimate the savings that will result from the enactment of this measure; however, it is believed that substantial savings to the Government will be obtained. We are confident that the lease-construction contract method will reduce the use of the most costly straight leasing method and result in substantial overall savings and should be adopted as a supplementary means of meeting the most urgent permanent space requirements.

Mr. CONSTANDY. I would like to make exhibit No. 3 the February 12 proposal from GSA to Mr. Albert, carrying the proposed legislation.

Mr. GRAY. Without objection, it will be included in the record at this point.

(The information referred to follows:)

EXHIBIT 3

UNITED STATES OF AMERICA,
GENERAL SERVICES ADMINISTRATION,

Washington, D.C., February 12, 1971.
Hon. CARL ALBERT,
Speaker of the House of Representatives,
Washington, D.C.

DEAR MR. SPEAKER: There is transmitted herewith, for referral to the appropriate Committee, a draft of legislation, "To amend the Federal Property and Administrative Services Act of 1949, to authorize the Administrator of General

Services to dispose of property owned by the United States, for use in lease construction agreements, and for other purposes."

Enactment of the proposed legislation is considered essential to permit the General Services Administration to carry out the construction program, as described in the Budget of the United States Government, Fiscal Year 1972. This legislation will authorize the sale of Government-owned building sites and architectural plans and specifications to private entrepreneurs. Such companies would construct buildings on those sites and in accordance with those plans and specifications for long-term lease to the Government.

The legislation would also provide lease construction authority for any project which has already been approved pursuant to the provisions of the Public Buildings Act of 1959, provided that there has been no substantial change in the scope of the project. With respect to new projects, whether they involve lease construction or direct Federal construction, it is contemplated that the proposals will be submitted to the Congress in accordance with the provisions of the Public Buildings Act.

Enactment of the proposed legislation would permit GSA to make greater use of lease construction financing for acquisition of buildings to house Federal activities. Construction of public buildings by private developers for long-term lease to the Government will-in contrast to direct Federal construction

Strengthen local property tax rolls since private lease construction would not be tax exempt;

Result in an immediate reduction in Federal expenditures by placing costs for new space on a pay-as-you-benefit basis;

Permit the Government to recoup its prior investment in site and design costs, with the proceeds derived from the sale of Government-owned sites, plans, and specifications being deposited into the Treasury as miscellaneous receipts;

Result in economies to the nation by permitting the taxpayers' dollar to realize greater current investment returns in other programs areas;

Provide for construction to be begun on much of the unfunded backlog of approved projects ready for award in 1972;

Permit greater flexibility in use of property resources by the Federal Government since lease agreements could easily be extended or terminated depending on the Government's requirements at the time of lease renewal (normally two extensions would be required if a building were to be occupied for its full estimated economic life of 50 years) ;

Permit greater consolidation and collocation of Government activities whose efficiency will be increased by such consolidation and collocation ;

Improve accounting and evaluation of property use since costs would be reflected on an annual basis rather than a "one time” capital outlay.

The Office of Management and Budget has advised that there is no objection to the submission of this proposed legislation to the Congress and that its enactment would be in accord with the program of the President. Sincerely,

Rod KREGER, Acting Administrator.

A BILL To amend the Federal Property and Administrative Services Act of 1949, to

authorize the Administrator of General Services to dispose of property owned by the United States, for use in lease construction agreements, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 210 of the Federal Property and Administrative Services Act of 1949, as amended (40 U.S.C. 490), is further amended by renumbering section 210(h) (2) as section 210(h) (3), and adding a new paragraph (2) immediately after section 210(h) (1), as follows:

“(2) For the purpose of lease agreements providing for the erection by the lessor of buildings and improvements for the use of the United States, the Administrator may make the property of the United States to be used as a site for a public building available by sale to the lessor in such manner and upon such terms as the Administrator deems appropriate to the best interests of the United States, together with such plans and specifications for the construction of a public building thereon as the Government may possess : Provided, That the proceeds derived from such sales shall be deposited into the Treasury as miscellaneous receipts; Provided further, That projects heretofore approved pursuant to

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