the provisions of the Public Buildings Act of 1959, as amended (40 U.S.C. 601 et seq.) and in which no substantial change in scope has been made, may be constructed under the authority of this section 210 (h) without further approval, and the prospectuses submitted to obtain such approval shall, for all purposes, be considered as prospectuses for the lease construction of space. Sections 202 and 203 of the Federal Property and Administrative Services Act of 1949, as amended (40 U.S.C. 483 and 484), shall not be applicable to property made available under this subsection."

Mr. CONSTANDY. Now, if we could turn to what you have as Tab C, this letter could be understood in its total context. You have a series of letters there, and I think they are worth reading.

If you will forgive me, they are long, but I think that it makes the entire situation clear in the recital of the letters, does it not, Mr. Kreger, pretty well spells it out?

Mr. KREGER. I think so, yes, sir.

Mr. CONSTANDY. Remembering, now, that you sent the proposed one on February 12 to the Speaker.

You have first the letter dated, February 23, 1971?

Mr. KREGER. Right.

Mr. CONSTANDY. From Mr. Henry Leline to Mr. Sampson of the public building service. If you would, please.

DEAR MR. SAMPSON:

In Appendix B to the budget for fiscal year 1972, your Agency indicates that if the leasing authority, which you intend to present to the Congress, is approved you will proceed under that authority with construction of a substantial number of buildings.

In reviewing the list of buildings referred to in this appendix, I have found that there are several buildings in which the Postal Service would be the dominant occupant, occupying more than 55 percent of the space.

Further, it is my understanding that with respect to most of these projects the detailed drawings and specifications either have been completed or are nearing completion and sites have been selected and in some instances actually purchased. In other words, it is our understanding that these projects will be placed under contract during fiscal 1972.

Under these circumstances, perhaps we should consider an arrangement between our two agencies under which the plans, specifications, and site for certain of these buildings would be transferred to the Postal Service. The Postal Service would then proceed under its broad construction authority to construct the buildings with the understanding that the space required by other Government agencies would be leased back to GSA.

It is entirely possible that in some of the communities to be served by your proposed leased projects, the needs of other Government agencies and those of the Postal Service could be met with a single building. In such communities a central location for the Postal facility involved may very well meet our requirements as well as those of other agencies. In larger communities, as you know, our location criteria often do not coincide with the central location desires of the Government agencies for which you supply space.

In smaller communities it would seem impractical to construct two Federal buildings to meet Federal Government requirements. In these instances some arrangement of the type described above may be the most expeditious way of meeting total Federal space needs.

I will be discussing the possibility outlined above with other executives of the Postal Service in the near future, and will be in a position to discuss the idea with you further if you believe such discussion would be worthwhile. I will look forward to receiving your reaction to this suggestion. Sincerely, Henry Lehne, Assistant Postmaster General, Facilities Department. Mr. CONSTANTY. And 11 days later, Mr. Lehne makes a proposition. to GSA that certain projects you intend to proceed that way, would be built by the Postal Service, and you become their tenant, is that correct?

Mr. KREGER. That is his proposal; yes, sir.

Mr. CONSTANTY. Now, next, we have a letter dated March 12, 1971, to Mr. Henry Lehne, and written by Mr. Sampson.

Mr. Kreger.

Dear Mr. Lehne:

This is with reference to your February 23 letter regarding our proposal to proceed with certain authorized projects under lease-construction legislation which is pending in the Congress.

Your position with regard to accommodating the Postal Service and other agencies in a single facility in the smaller communities certainly has merit and is consistent with our practices in developing joint occupancy projects.

However, assuming enactment of the legislation which we have proposed, there does not appear to be any significant advantage to transferring certain projects to the Postal Service.

Your proposal would also introduce complications with respect to the integrity of our fiscal year 1972 budget submission which specifically identifies a total of 13 projects for execution by the General Services Administration. Any significant deviation from such a course of action at this time would be extremely difficult to justify.

I cannot, therefore accede to your proposal regarding the transfer of projects in which the Postal Service will be the dominant occupant, but look forward to being able to satisfy postal needs in these buildings as they are completed.

That is signed by Mr. Sampson.

Mr. CONSTANTY. So the effect of the letter from the Postal Service is to pull the rug out from under GSA's plan to proceed with leaseconstruction, is it not? If you do not like my characterization, you can use your own.

Mr. KREGER. I do not think it pulls the rug out from under it. It certainly causes difficulty concerning projects with which the letter deals. There is no doubt about that. It causes the revision of some prospectuses.

Mr. CONSTANDY. Then there is a letter dated May 5, 1971. Again, from Mr. Lehne, again to Mr. Sampson, and may I read that to save taxing you so much?

Mr. KREGER. Thank you.

Mr. CONSTANDY. Dear Mr. Sampson:

In my letter of April 7, 1971, on Postal Service policies and guidelines governing joint Postal Service-GSA new construction projects, I indicated that our review of your 1972 program would be completed within 30 days.

This review has been completed insofar as the lease-construction portion of your program is concerned. In conducting the review, the other Assistant Postmasters General and I have given full consideration to the pressing and rapidly accelerating need for improved mail service. No other facet of our operation receives so much critical attention from the public and, of course, this is as it should be.

When our Postal facilities do not have the capacity for handling mail on a timely basis-when peak hour volume exceeds peak hour capacity by ratios of two, three, and four to one-then the mail backs up in large quantities and the service to the public deteriorates. In all instances involved in this review, we found that the project had been pending in GSA for a substantial length of timeusually several years.

"We understand that the reasons for this delay are in virtually all instances matters beyond your control. Nevertheless, while the projects are pending, the Postal Service in the areas affected continues to deteriorate and pressures for action on the Postal Service continues to mount.

It was just this situation that the Postal Reorganization Act was designed to remedy. Within a few months that Act will be effective, affording the Postal Service a method for acting rapidly to obtain the space it needs. In contrast, GSA cannot act on these projects until Congress has considered and passed the lease-construction authority you have reflected.

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 unilatera! 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.