Testimony on “Federal Leased Property: Are Federal Agencies Getting a Bad Deal?”
by Jeffrey Heslop
U.S. Securities and Exchange Commission
Before the Senate Committee on Homeland Security and Governmental Affairs Subcommittee of Federal Financial Management, Government Information, Federal Services and International Security
August 4, 2011
Chairman Carper, Ranking Member Brown, Members of the Subcommittee:
Thank you for the opportunity to testify on behalf of the Chairman of the Securities and Exchange Commission1 regarding the Commission’s lease of office space at the Constitution Center building in Washington, D.C.
The report by the Commission’s Office of Inspector General (OIG) concerning Constitution Center identified a number of significant flaws in the SEC’s leasing processes. The fact that the SEC has not paid any rent to date for this property and that the bulk of the space has been leased to other tenants does not adequately address a situation that never should have occurred. The only appropriate response by the SEC is to take all necessary steps to resolve the remaining space issues, to correct the obvious deficiencies in our leasing processes, to ensure accountability for the events surrounding this lease, and to work with the General Services Administration (GSA) with regard to future space needs.
The Chairman of the SEC has pledged to address the issues identified by the OIG aggressively and transparently. My testimony today will outline for the Subcommittee how we intend to make certain that resources are used prudently, that the agency implements the recommendations of the OIG, and that future leasing activity is managed properly.
The SEC currently employs approximately 3,900 permanent staff and more than 700 contractors. Approximately 60 percent of the permanent staff work out of the agency’s headquarters, principally the Station Place buildings adjacent to Union Station in Washington, DC. The agency’s remaining 1,500 employees (mainly enforcement and examination staff) work in our 11 regional offices. The SEC does not own any of its facilities, all of which are leased. In addition to office space, these leases include space for public meeting rooms, hearing and testimony rooms, files and records storage, and information technology (including the agency’s data center and alternate data center). The SEC currently maintains about 2.5 million square feet of leased space. In the current fiscal year, the lease payments total approximately $100 million, which is about 8 percent of the agency’s annual budget. The Commission’s Office of Administrative Services (OAS), through its Real Property and Leasing Branch, has been responsible for managing the leasing program for the agency.
My understanding of what transpired in the Spring of 2010 is as follows:2
The SEC’s OIG recently reviewed the agency’s leasing process for Constitution Center, issuing a report on May 16, 2011. The report provides a thorough review of the OIG’s findings and recommendations, and reveals significant flaws in our leasing processes. We are promptly implementing the OIG’s recommendations, and, as described in more detail below, recently submitted to the OIG a written corrective action plan. Specifically, the Chairman has directed me to implement the OIG’s recommendations and to address the deficiencies in our leasing processes. In addition, the employees recommended for possible disciplinary action by the OIG have been reassigned to other duties pending resolution of the disciplinary process, which we are moving forward on quickly.
As noted above, growing budget uncertainties led the SEC to seek ways to undo or limit the obligations imposed by the Constitution Center agreement. After successfully identifying two new lessees for the majority of the space, the SEC retains approximately 300,000 square feet at Constitution Center.
Chairman Schapiro, I and others at the SEC recently met with the head of GSA to discuss, among other things, the remaining Constitution Center space. Both this and multiple subsequent conversations between our staffs have been very productive. GSA has informed us that it has prospective tenants with leasing needs that may align with the available Constitution Center space. More recently, Commission staff, working with GSA, has been seeking to finalize the terms concerning the remaining space to move this process forward so that the space may be used by another federal tenant. We are urgently addressing any remaining issues regarding this lease, and will continue to work closely with GSA. Because of the timing of the lease, the SEC has not been required to make any lease payments to date.
The OIG report provides a thorough discussion of the OIG’s findings and recommendations, and clearly reveals significant flaws in the process by which SEC leasing decisions were made. On June 30, the SEC provided the OIG with a written corrective action plan. While work is underway to implement the corrective actions described below, they may be revised or expanded as a result of the ongoing discussions with GSA. Currently the corrective action plan includes the following:
Although the SEC is engaged in the implementation of the corrective action plan, additional requirements and details are likely to be established consistent with the relationship established with GSA.
In light of the problems identified the SEC recognizes the benefits of having GSA manage the Commission’s future lease acquisitions. Leasing is not part of the Commission’s core mission and we cannot allow it to impede that mission. GSA, by contrast, has long experience and expertise in leasing.
In her recent meeting at GSA, in addition to discussing the Constitution Center space, Chairman Schapiro discussed with the GSA Administrator ways in which GSA could assist the Commission on our leasing efforts going forward. GSA indicated it was open to playing a significant role in those efforts. Following that meeting, Commission staff has had multiple further discussions with GSA staff. On August 1, 2011, the SEC and GSA entered into a Memorandum of Understanding (MOU) with each other that contemplates an immediate role for GSA in managing upcoming SEC leasing activities, as well as all other future leasing needs as they arise. Ultimately, we anticipate that GSA will be responsible for, among other things, assessing the space needs of the Commission including requirements development; planning for the acquisitions, including preparing preliminary cost estimates; drafting information lease prospectuses, conducting market surveys, and establishing negotiation goals and objectives; soliciting, receiving, assessing and negotiating the offers, which will cover the competition process; executing all required lease documents; and administering the lease, including responsibility for tenant improvements, construction, and any necessary moves. The arrangement with GSA also should permit the SEC to pare down its leasing program solely to function as liaison to GSA. In addition to the leasing activities at the core of the MOU, we will be exploring other avenues of administrative services that GSA may be able to assist us with that will permit us to scale back further our administrative functions in the relevant areas.
The OIG report recommended that the SEC initiate disciplinary proceedings for three individuals involved in the Constitution Center leasing process. Accountability is critical because, without it, there is neither fairness nor reform. This process has begun, and Chairman Schapiro has expressed a desire for this process to move as quickly as the laws and regulations permit, consistent with fundamental fairness, to assess and implement remedial measures and discipline as appropriate. In the meantime, the individuals for whom the OIG report recommended a disciplinary review have been reassigned. Their current duties do not involve leasing or any other authority that could bind the Commission, nor do they involve activities that relate to the expenditure of appropriated funds.
There is no doubt that the OIG report identified substantial failures in the SEC’s leasing process, and we are making every effort to address those failures and ensure no reoccurrence in the future. These efforts include items specific to Constitution Center, including actions to eliminate the remaining space obligations and to conduct the disciplinary process for the relevant individuals. In addition, we are moving quickly to make more programmatic reforms that are incorporating GSA into our future SEC leasing needs.
I would be happy to answer any questions you may have.
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