>> it is vision. >> one idea is if you have a single issuer or a few issuers

to avoid this monopoly situation you can allow that to exist only as a cooperative like the the gcc. they go back into the chain where it is competitive above or below. i think having one or two issuers is a good. get as many participants to take the credit risk is good but you need a way of standardizing the mortgage product. if we had 20 mortgage originators who would go through the run -- one deron 4 they go through different types of disclosure and 20 different markets. that won't promote liquidity. it is a balancing act between spreading risk and standardizing. >> a final question to all the panelists and i begin with you

mr. davidson. you propose the subordinated debt approach but it implicates the bigger issue which is recognizing we should begin to take steps now to begin a transition that legislative steps because it takes a long time to get legislation through and the potential is not likely going to happen today or even next year but as you suggest and everyone on the panel has suggested there are things today that should be considered to begin this process, maybe an experiment that doesn't work out and saves as the trouble of trying them on a larger scale for adopting them as an exclusive remedy. if you can comment on your approach and how it might work and is it feasible to adopt it today i would like to a -- ask

the other panelists what are the steps you would suggest within the purview of the agencies today and as you understand it, legal framework. >> the subordinated approach is something gses have done in the past. it is something the gses are exploring different ways of adding private capital. it is doable with the existing structure. i don't know if they need the approval of treasury and they can move in that direction. i like the subordinated bond approach and private mortgage insurance. the key factor is sending the

message that experimentation is good. that is what you want to see and you don't need to have sole focus on conservatorship of every dollar today and finding the right solution adds value to the gses overtime. the other component is to move the darlan away from eliminate the gses tomorrow but management is all gone and our other pieces of the gse we like to preserve overtime? it is doable. >> mr. van walkenburg. >> i proposed one idea that there's no single monolithic solution. all these markets are complex and price risk differently with

different investors so the subordinated bond solution might be the best. we don't know until we execute and see what the price and cost is so our proposed the edf market is one avenue of exploratory. i don't have a particular single solution. you have to find out what costs are and the best execution for the government balance sheet. >> we end up with a portfolio of things we need to work on in the interim given the likelihood of legislation in the near term as well. the fhsa is one way. we could lower them further and gradual basis. it would enable the private market to open up. fhfa could limit the borrowing

from the home loan banking system. you could encourage bond legislation to open up to be another funding vehicle. there is a portfolio of approaches that will attack the u.s. having system and be the solution for finance. there are a few of these we can do without legislation and those are a few of the things we should work towards and we will find the answer and fries to the top. >> thank you very much. this has been very helpful to the subcommittee. don't be surprised if your called again for your views and advice because it is extraordinarily helpful and thank you for your testimony and your appearance today. my colleagues might have additional questions. we will ask that these questions be submitted before the end of

the week. by friday is fair and we will ask you to return them as promptly as possible. thank you very much. the hearing is adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

>> 10-9-eight-seven-six-five-four- three-two-1-zero. >> these are the stakes. to make a world in which all of god's children can live or to go into the dark. we must either love each other or we must abide. >> vote for president johnson on november 3rd. >> we will look at the history of political campaign ads with robert man. former homicide detective james wilbur l. on the day jack ruby killed the man under his protection, we harvey oswald and speechwriters for president nixon show how his methods were communicated. american history tv on c-span 3.

get a schedule and c-span.org/history. >> two live events focusing on jobs today. first at eleven a.m. eastern president obama talked about veterans and employment opportunities at a speech at the navy yard in washington d.c.. we will be live up the joint economic committee meeting on the july unemployment figures. you can see both events on c-span. deputy assistant treasury secretary for retirement mark every says not enough americans are contributing to retirement accounts and many won't maintain their life stalin retirement. for that reason the obama administration is once again pushing congress to make direct enrollment automatic. he spoke at a conference hosted by the boston scientific center for retirement research. this is 55 minutes. >> i am delighted to have the

privilege of introducing mark iwry as today's keynote speaker. many of you are acquainted with mark who is senior adviser to the treasury and deputy assistant secretary to retirement and health policy. i had the pleasure of knowing mark for long time. his influence on public policy calls to mind a quote by harry truman. amazing what you can accomplish if you do not care who gets the credit. that is marked. he has been a major force behind pension and health care policy for decades. chief among his accomplishments is the 401(k) and otto escalation default rates which is the biggest positive development since 401(k)s were created. he is an architect of the favors credit and coauthored president

obama's proposal to expand coverage to otto iras. i don't have time to list of accomplishments but i want to stress he was brought by decision makers of all political persuasions in the public and private sector for his expertise, his insight and skill at making things happen. he is an unsung hero in the retirement policy community for his ability to develop and implement sensible policies. if you haven't already guessed my feelings he is a terrific human being. we are lucky to have him here today. join me in welcoming mark iwry. [applause] >> alicia, thank you for that

gracious act of perjury on my behalf. i am delighted to be here. this is a fantastic collection of talent. i would like to thank the commissioner dave rest, david weaver and everyone else who put this conference together. the consortium is a wonderful effort. it has been productive and added great value to the thinking about policy in this area and the three retirement research centers do extraordinary job.

i have the strong sense that being with such a distinguished and thoughtful group, time right now would probably be to close my remarks and go around a room and solicit ideas, collect your best thoughts and suggestions that i have been asked to talk a bit first so i will dutifully complied. the theme of the conference, innovation in retirement security is highly appropriate and timely. within the private pension system and retirement savings system which supplements the fundamental bedrock protection the social security system provides to the american workforce. in the private pension system

our second pillar of retirement security in this country, the market is innovating in a variety of important ways. there is a great deal of creative activity having to do with 401(k) plans, defined benefit plans and hybrids breaking down traditional barriers between traditional pension that define benefits that promise particular dollar amount per month for life in the traditional format as opposed to the contribution plan which puts a particular amount of input into the plan. they dollar contribution that grows with investment experience to produce an output that is not

necessarily determine that the outset. breaking barriers between those two classic formats is something innovative that the market has done on its own. policymakers have not taken the initiative to do that. the creativity in the market has gone beyond the labels and focused on the realities, specific attributes of these programs and vehicles, what characteristics should they have in order to help people get retirement security and provide for their retirement security. our private pension system right now is in a state one might characterize as a glass half

full, glass half-empty. the half full part is salient. sixty-five million american workers are covered by private pension and retirement programs. millions of middle-income and lower-income families have been receiving benefits for decades from defined benefit pensions and 401(k) and other profit sharing and other plants. they iras supplemented and attacks favored basis for folks that don't have an employer plan available to them and we have accumulated the largest pool of investment capital perhaps in the world.

the latest estimates from first quarter 2011 by the federal reserve suggest there is $11 trillion in defined contribution and ira programs with something like 2.3 of those trillion in the defined benefit pensions. something like $4 trillion now in the 401(k) and defined contribution and $4.7 trillion in the iras. they have been taking rollovers, large transfers from the other two types of plans so much of the money is attributable to these employers sponsored plans that had benefits rolled over to the individual retirement accounts while other portions of the ira assets are attributable

to continuing contributions by millions of americans, in particular people who don't have access to an employer plan. the employer sponsored system covers about half the workforce. perhaps a little more. those are key features of the glass being half full. the glass is half-empty in the sense the employer sponsored system covers half the workforce perhaps a little more. the rest are disproportionately minorities, lower income people, women who are not in the work force steadily for 40 years on end, the folks who are left out

are in some cases contributing to these individual retirement accounts but only something like one out of ten of the people who have no employer plan and eligible to contribute to an ira would be contributing in an average year. so that take up rate at which people use these tax favored savings opportunities is not where it could be. the system is also driven by tax preferences which are designed to encourage the private sector to supplement social security as it has done in such a formidable

way. those tax preferences were designed in a way that might not be ideal when a comes to how best to address the majority of american workers. the system of tax preference is deduction based. by that i mean as most of you know when you contribute $1 to of 401(k) accounts or similar pensioner when an employer contributes $1 on your behalf to retirement program it does not appear on the w. 2 and doesn't get included in your taxable income until years later when the dollar has grown and exit your plan as a withdrawal when you're ready to take it as benefits. when it goes into the plan it doesn't appear on your w. 2

which is a value to you in proportion to how high your tax bracket is. if you are in 40% or so tax bracket saving a dollar generates 40% of tax savings because that dollar would have been taxed to the tune of 40%. to you the cost of putting the dollar in the plan after taking into account your tax savings is the dollar minus the $0.40 you save or $0.60. if your tax bracket is 10% you are getting a dime worth of tax benefits for the dollar worth of savings you or your employer did on your behalf so the after-tax cost to you and the 10% bracket of saving the dollar is $0.90

rather than $0.60. you got a dime's worth of tax benefits. many in the economics profession refer to this as an upside-down incentive in the sense that the people who need help the most to encourage them to save are given the least incentive. as a result the congress in 2001 passed a tax credit designed to level the playing field on behalf of a majority of the american work force. a majority of our work force are in the lower tax brackets. many are working hard paying payroll taxes and not knowing any income tax, rather pay in their payroll taxes which are

substantial percentage of their income for these people. the income tax savings when they contribute is zero. they might have a fight attacks break where the employer contributes. this situation can be remedied by expanding this tax credit which congress enacted that gives people an additional financial incentive when their tax bracket is not the highest. if you save $1 in a retirement program you could get $0.50 back as a tax benefit. the current sabers credit

because of revenue constraints gives most people who qualify $0.10 on the dollar back or $0.20 on the dollar. very few get $0.50 on the dollar but it could be expanded to give more people in more substantial financial reward for savings that would level the playing field in favor of those in the lowest tax brackets. it could also be made refundable meaning folks who pay their payroll taxes but don't owe any income tax would get a refund in form of dollars contributed to their plan, what ever plan they contribute to voluntarily as an incentive to contribute. another shortcoming of the

current system is the people who have an opportunity to save in the workplace through an employer plan, many don't. one of the key innovations in the private sector that has addressed that shortcoming to a considerable increase in extent, and this is something alicia munnell has written on brilliantly is the automatic 401(k). the notion here has been one reason people don't participate as much in retirement savings opportunities is it takes initiative. it takes getting off the couch, deciding where to contribute if you have an employer plan. is clear where you contribute but may not be clear to you whether to contribute or how much to contribute or how to

invest it and the choices as behavioral economics have demonstrated can be daunting. they can keep people in a state of inertia where they don't get around to making the decisions and closing the deal and actually saving. we had traditionally something like 70% take operate. somewhere between two thirds and three quarters of folks eligible to save take advantage of it and the rest don't. the rest leave money on the table as the expression goes because the employer often matches what the employee contributes perhaps a rate of $0.50 to the dollar so there is that employer matching contribution the nonparticipant is leaving on the table that they could get by putting in

some of their own money. the employer plan is a powerful vehicle. it makes saving pretty easy but traditionally not easy enough. the need to sign up for the 401(k) and make the decisions, but to put in and how to invest has featured a lot of people. you may take the form home and tell h r you will get it back to them when you sit down with your spouse and think about it and make the decisions and bring it back next week. if you are like me by the time the weekend is over you can't find the form. you haven't had a chance to discuss this with your spouse or an adviser and time starts to go by and inertia takes its toll.

in the 90s one of my staff came to me when i was at treasury and said there is an obscure legal question we have been asked to consider. suppose the 401(k) plan puts someone in the plan, and rolled them and didn't make the sign up but make some sign out. would that be legal under the 401(k) rules? should we spend time taking the question on? my job involved hundreds of legal policy issues and my staff and i were swamped with things to do and i remember saying we have these major policy concerns trying to encourage savings and promote a more secure system, promote retirement security in various ways. so many of strews legal issues

on our plate already i don't think we have time to deal with this. the light bulb did not go off until a little later. it was probably a couple months. and then all of a sudden it became clear putting somebody in a 401(k) plan, giving them a choice to step out of it might overcome the inertia that keeps a third or quarter of eligible folks out of the plan. it was framed as a negative election. instead of having people elected to participate could we have a negative election where the election form is only if they want out of the plan. we then realized when it came to good policy to promoting retirement security this was not an abstruse legal question but a

good idea that we ought to focus on immediately and if it wasn't legal make it legal and promote it. we proceeded to do that. the few plants that had been trying this were given reassurance that it is consistent with all the 401(k) rules and in 1998 we issue a ruling defining this practice and approving it, promoting it. negative election didn't seem like a great name. this is washington after all. we wanted people to understand this is a positive constructive idea consistent with individual

choice but helping people find it easier to facilitate savings so that inertia, the most powerful force in human affairs would be on the side of safety rather than not saving. and must say when we call that i will confess also mustaf and i gathered over lunch and spend half an hour discussing the name. what should we call it? automatic enrollment. just because that is descriptive, it is automatic in a sense that as an employee you are in the plant automatically even if you do nothing but it is not automatic in the sense you have to stay in. that is just a presumptive thing that happens. you can opt out. we called it that because we also wanted to plant the seed that all phases of saving could be automated in that sense.

if you have enrollment made automatic so people are in unless they are about what about investment? give people the choice, let them decide what they want but make an automatic option available so if people can't the side or want to procrastinate and decide later after they get more financially literate they can do that. so automate all phases. enrollment, contributions, investment and what about pay outs? a lot of the funds in our private pension system leaked out of the system in the form of consumption. that may not be for an emergency or to feed the family when someone is unemployed or for

long-term investment in security like purchase of a home or education for oneself or ones kids. it may be the fast boat or take a vacation or what have you. i don't think the government ought to tell people what to do or whether to buy fast boats or use savings for retirement or college tuition but we are providing tax preferences. the taxpayers are paying more in order to direct tax preferences to this public policy purpose. we have some stake in encouraging people in a certain direction. the purpose of the tax preference being supplementing social security by providing more retirement benefit and

securities. automatic rollover that is transferring the money out of the plant if you are not ready to retire, if you're in your 20s or 30s transferring it to your new employer's plan hopefully you have a new employer and transferring to your individual retirement account. to continue to grow and accumulate on a tax favored basis, that so-called portability, tax-free rollover from an employer plan is something we also could make more automatic and the system has moved in that direction. if the employee who leaves the job doesn't ask for their money the money stays in their plans. if the employee has less than $5,000 in the plan it used to be the employer could catch a person out in voluntarily.

appears in your mailbox and tends to be spent. once people get their hands on the money especially the smaller the amount it is harder to visualize this will make a difference to your ultimate security and cold age it is more likely to be spent. what we did, congress and the executive branch was developed a way to automate these payouts. no longer with employers in voluntarily cash out $5,000 or less if that was the account balance in the plan. they would instead keep the money in the plant unless the individual ask for it. if a person wants it, give it to me, they have got it but if a person is silent as people often

are their distracted or changed their addressed the money stays in the plan continuing to accumulate on a tax favored basis or get rolled over to an ira in that person's name even if they didn't sign up. automatic rollover to an ira. either way it stays in the tax favored retirement system. so the phases of savings have been automated increasingly. plans have gone to automatic enrollment to an appreciable extent. large plans roughly half converted from the traditional way of telling people if you want to be in you got to sign up to telling people you are in at a particular contribution rate that might be 3% or 6% of pay. doesn't have to be a particularly low rate. it is whatever the plan sponsor decides.

we have been at pains to emphasize the rate does not have to be the 3% a lot of plans use which was the rate we used in our 1998 ruling approving automatic enrollment as an example and as an initial toe in the water for this concept of automatic enrollment. plans are increasingly on o enrolling people not slow much the small but the larger plants. employees are participating no longer in these auto and rolling plant at two thirds or 70% rate but much more typically 95% of the eligible employees. the take up rate has been dramatically increased and who has benefited most? lower income people, minorities, folks who were not signing up

for the plan at their own initiative often enough and are now doing so. those who don't want to save are free to opt out and a significant number of people whether it is 5% or 10% assert that choice. these automatic 401(k)s represent a first generation of making savings easier. there is a second-generation coming on the a lot of creativity in the market is fostering. by that i mean taking the contribution that might be 3% of pay for people newly hired and hiking get to 5% or 6%. people who are newly hired will be in the plan at 5% or 6% of their pay unless they choose otherwise. they can go to zero or 1% or

15%, whatever the maximum is permitted in their plan but when you use 5% or 6% the anecdotal evidence suggests you don't get a lot more people opting out. maybe a few but not a lot more. the contribution can ratchet up over time. the employer can say we started everyone at 5% but in their second year at the firm they are going up to 6% and your third year seven%. you can get off the escalator any time you like but it is that default. if you do something you're saving level will go up in pursuit of greater adequacy of retirement savings. that stepped up technique has been spreading steadily in the 401(k) universe. investments likewise have been automated so there's a default investment and the labor

department has issued a guidance some years ago. qualified default investment alternatives have been used to a great extent in the private sector. this success story in the 401(k) world has helped millions of people get into savings who were not saving before. what about the other portion of the population that doesn't have access? you can enroll someone automatically in something they don't have. the idea has taken hold -- david john of the heritage foundation and build a 0 -- build gail and

peter orszag, we as part of the retirement security project, a nonprofit venture some years ago worked on these approaches and we put forward a way to automate and roland -- and roland --en l --enrollme --enrollment. many employers feel they're not ready to. they have an asset their employees could use to make saving easier which is their payroll system. one of the great strength of our pension system is it is employer based using that payroll system to make saving easier. rather than to amass a certain amount of liquidity a few thousand dollars worth of cash to contribute to an i.r.a. although you can contribute

smaller amounts subject to the trustees rules but rather than having to think about where i am going to get a lot of money to make a meaningful contribution the employee with payroll deduction can benefit from the gradual allocation of a few percentage points in tax favored savings. it is pretty painless but it adds up. that payroll based saving mechanism which is the heart of the 401(k) can be replicated for millions of folks who don't have access to a defined benefit pension or anything else by way of saving plan at work. we can extend automatic enrollment to them by asking their employers to let the

individual salary reduce, have part of their salary go to the individual's own tax favored savings accounts and individual retirement account without the employer having to sponsor a plan, without the employer having to contribute from its own funds or comply with the labor law rules or the tax code plan qualification rules that apply to 401(k)s or other plans. as a matter of policy the administration and most people want employers to sponsor the plants. we encourage them to define benefit pensions or contribution plans or whatever plan they are willing to adopt but those who are not ready to do that could let their employees use the payroll system as a conduit. delivery system to get the money

from the employee's own pay check if the employee wants to. to a tax favored accounts like an ira in which the employee could save. that we call the automatic ira. it is like automatic enrollment and we propose heritage foundation has been very supportive of this. many other organizations have been tremendously supportive. members of congress on both sides of the aisle. the concept which the retirement security project launched some years ago was adopted by the candidates. senator obama and senator mccain. both indicated support for it

and senator obama put it in his platform as a central component and as president has continued to oppose this in his budget proposals. a tax credit would go to the employers that do this, what their employers use their payroll system and no employer that has a plan would be asked to do this. it would be employers who don't sponsor a plan and have more than ten employees and been around for a couple years. the idea is it should be as easy as possible for the employer. minimum of hassle or burden for the employer and no outlay. employers not contributing no outlet cost. has another item on its to do list with things like income-tax withholding that it has to do

for its employees already at the federal or state level. our hope is something along these lines, automatic ira proposal which members of congress, congressman neal and others in the house and other senators have proposed which attracted support from a variety of quarters overtime. our hope is this will help address the people that are not in the system. there are many other potential innovations and constructive ideas that would be desirable to pursue that i would love to discuss with all of you. we undertook to save some time

for q&a so alicia, if you would like to begin that? >> if you have questions write it down on a piece of paper. there are people all over who will collect it. andy gave me some. your baby was attacked by a wall street journal. there was a recent journal that indicated the pp a had unintended effects on 401(k) savings. >> for those not familiar with the acronym, pension protection act of 2006 was one of the things treasury and irs promoted automatic enrollment, alicia is referring to a point of view that points out that if you enroll people in the plan some

might go along with inertia even if instead of not participating otherwise they would have at a higher level. i would have contributed 6% but the default is 5% so i do nothing and i am in at 5% rather than 6%. that is a phenomenon some people call anchoring. bridget major has pointed out that that can happen when you automatically enrolled people. as bridget would agree you can address this by escalating the contribution level from year to year. as others suggested every time someone gets a raise give them an increase in the contribution automatically unless they want

to do otherwise so they don't see their take-home pay going down. as many companies do without the timing of a race you can increase the contribution level automatically every year unless the employee of its otherwise. apart from that it is so significant to have people who are not contributing at all enter the plan for the first time and become savers by reason of automatic enrollment, that tends to swamp the effect of people who might have contributed a little more but by inertia might be drawn to the default level of contribution. to take a zero contributor and bring them to 5% on would argue is more of a social benefit for all of us than to take a 10% contributor and have them contribute at 5% because they go along with an air show.

you have encourage someone to come into the system and if you increase that 5% over time you take care of the problem. >> there are a couple that are related. utah about the accumulation phase of the 401(k) plan. there's emphasis on people getting lifetime income out of the 401(k) plan. you made a point that all the money is moving from 401(k)s to iras and as we did something for 401(k) that is not read the money is. >> contributions are being generated in employer based plans more than they are an r r as even though there are lots of contributions to our r as as well. focusing policy on getting

people into 401(k)s as you have said is more worth it. the problem you are alluding to, another one of the shortcomings of the system is that over time as we shifted from a defined benefit plans to i would not a defined contribution plans to 401(k)s it is not so much defined benefit to defined contribution as employer funded, employer directed, employer investment directed to do-it-yourself plans that people direct on their own. that shift has been associated with the decline in retirement income payments as opposed to single cash payments. more people are taking money out

of their plans in a cash payment and investing it on their own than might traditionally have been the case when plans were more prevalent that a lifetime income and a monthly check you got for your entire life and the life of your surviving spouse that guaranteed you would not run out of assets during retirement at least to the extent of the monthly check in addition to social security. the traditional pension plans that paid annuities were in a sense mimicking some aspects of social security paying a lifetime income. in earlier times some of them did. lifetime income has been declining. the find benefit pensions are paying more lump-sum as an less

lifetime income. the default is a lifetime annuity. people will elect against the default. behavioral strategies need to be more sophisticated than relying on a default and therefore when the market has been doing by way of innovation and what the treasury and labor departments have been doing is focusing on how we can encourage more restoration of lifetime income to our system. more people who want it. more substantial options that are easier for employers to choose to put in their plans, easier for individuals to take seriously as an alternative they might want to use for their retirement security and lifetime income protection or retirement income whether it is guaranteed for life or long string of

payments for decades that may not technically be an annuity that is guaranteed for life. that is something that is coming back to our system slowly. we are encouraging a national conversation about this. we have gotten many comments including from many of you and we are about to come out with some administrative guidance that would be designed to encourage people to consider options for lifetime income in various formats whether commercial annuities, defined benefit plan annuities, individual retirement accounts, ways to help people manage their assets in retirement, accumulating assets in the first place is critical and we are far

from having reached our goal but many middle-income people are reaching retirement with more accumulation of assets in addition to whatever guaranteed income they have from social security or defined benefit pensions and those people need help deciding how to make this money last and how do i sure i won't run out in old age? that is the issue being addressed and we very much invite all of you to counsel with us on how best to promote that. we used to have something we call the private pension system. we still call it a private pension system but the term pension has traditionally connoted lifetime income, a stream of payments that is guaranteed for life the way social security is, the way many

defined benefit plans still provide income and returning to that as a viable option not necessarily as something everyone should do for all of their retirement savings, you need flexible assets, many people feel for emergencies and long-term care, to at least put this option more solidly back on the table. >> you need to have a talk when you leave here because there are so many questions. one person asked do you have any thoughts about limiting investment options? your whole deal is to make this easy and automatic. a lot of investment options are confusing. is there any thought about a limited number? >> our whole deal has been to make saving easier and much of it to make it more automatic but part of that deal has been to

recognize the voluntary nature of our private pension system and recognize that the market and the private sector is in the driver's seat and that is appropriate. we are trying to encourage, make it easier rather than require. i think 401(k) plans are finding they can make choices easier. in some cases not by reducing the number of options but as you have written very eloquently by having one be the default. if you have one automatic investment option it is easy for people who would otherwise be paralyzed by the range of choices to go along with that and then think about whether to diversify. >> no idea what the answer is. could and investment companies

such as vanguard implement an auto ira if congress doesn't enact legislation? >> that is a creative thought and that is why we are here. there's room for all sorts of innovation. employers now can adopt a payroll deduction are a. if they are not ready to have a plan and we hope automatic iras would encourage employers to adopt plans when they see how effective payroll based saving is and how their employees appreciate it but employers who don't have a plan can have a payroll because of the way they send direct deposits to pay checks to people's financial accounts instead of writing a paper paycheck out and handing it to focus on friday afternoon.

the direct deposit of paychecks is a model for taking perhaps 5% of that paycheck at the employee's be test and send it where the employee wants to send it. [inaudible] >> you could enroll employees and the automatic ira would automatically employ them in the iras and let the mop out. you could do something like that in another context the employer's right now have adopted a 401(k) or simple are a plan -- obviously employers adopt a more elaborate plans but small businesses are not doing

this voluntarily and that is why the automatic ira proposal would call for employers not large enough to sponsor a plan to make their peril system available with the tax credit that would the fray whatever might be entailed. >> you are only a day from vacation. given the emphasis on math teachers is there a role for financial education? ..

>> at a certain level with a certain investment, you want them to assert their choice. the best thing is for the individual to decide exactly what they want. the auto features are just to help people get off the couch and start saving, to help people get into the system. once they're in the system if they haven't already a sort of their choice, they ought to have the opportunity to learn enough about these choices in order to make the choice that is best for them. and i think that is, it is critical that we promote the financial capability and financial literacy efforts. i know that you, ana maria, libya, others here, have been leaders in the social security demonstration has been a leader in that, the treasury and the

obama administration are strongly supportive of it, and have also been trying to advance fat. and let me add, to connect these things, in closing, the idea that people need help, advice, other types of assistance in figuring out how to make their savings last and how to make sure they neither run out during retirement, nor go to their savings in the way, because they're overly fearful of running out, helping people with those issues is so education intense of a project, it's not only giving them easier mechanisms and methods like lifetime income arrangements, but it's also helping them understand how it all works, how an account balance translates into a stream of income. in framing the issue so people become used to thinking in terms

of her retirement or pension paycheck that they need to provide for themselves rather than just a sum of money whose duration is uncertain. so, this has been great. i very much hope that we can continue as we've been doing the dialogue with all of you here. we very much welcome, i say we, the administration, treasury department included, welcome your continued suggestions, ideas, input and collaboration on what needs to be a thoroughly bipartisan, nonideological effort to promote retirement security for all americans. >> mark, thank you so much. [applause] >> john, you should probably come up and take over.

[inaudible conversations] [inaudible conversations] >> now a hearing examining the federal leasing process and its management. a senate governmental affairs subcommittee is also looking at whether or not federal leasing is inefficient use of taxpayer dollars. it's estimated federal agencies occupied about 635 million square feet of leased building

space domestically in fiscal year 2009. this is just under two hours. >> good afternoon, everyone. on the half of surround myself welcome to the committee searing. i was listening to senator brown, we may be the only hearing in the senate today, i don't know, but the others are dropping like flies. you see the two of us, you know we're serious about saving some money, and we are for our country. but we are glad our witnesses are here. and all the guests as well. today we're going to examine the challenges that are federal government faces managing its real property, in particular its reliance on space is leased from the private sector to satisfy long-term real estate needs. i just addressed a group over on

the house like a little while ago, scott. they come from the accounting industry, the auditing industry and do a whole lot of work, affirm, to support the gao's efforts with respect to high risk of list, high risk for using a lot of money, taxpayer money. but we have had a number of hearings in the past about the real estate high risk and literally thousands of people probably sit around and thousands of property the federal government owns and we pay utilities for, maintenance for common security for, we got to get rid of. we don't use them. we also find out that there's something else we spent a lot of money for, and gl has been on this for a couple years, and that is we have a lot of agencies that lease space years. lisa for decades. we save a lot of money. they would save a lot of money instead of leasing we would buy this stuff. there's a lot of instances where it makes a lot of sense to

lease. like the department, the census office. every 10 years u.s. census. it doesn't make sense to buy all those pieces of property they use once every 10 years. but that's a bit of background here. but there's a general consensus the federal government has to get smarter about the ways we manage our buildings and land. the president said both parties now have made doing so a top might management priority and with concerns of implication our deficit our national debt mounting, eliminating waste, achieving cost savings in this area remains a top priority for us, and hope for the rest of our college in the house and senate and the administration. between two dozen one-2002009 we ran up as much debt agenda as we didn't first 208 years of our nation's history. last year we ran up what may be the largest deficit in our nation's history. most here in washington are united in our desire to find a solution to our nation's fiscal

problems, we're still facing an ocean of red ink as far as the eye can see, even after enactment earlier this week of spending cuts included in the legislation to raise her countries debt ceiling. a wide right of ideas have been put forward on how to reduce our budget deficit and again whittling down our debt. last fall majority of our -- co-chaired by alan simpson, former republicans senator from wyoming and the erskine bowles, former chief of staff to then president bill clinton, they provided us along with their colleagues on the deficit commission our roadmap to reduce federal deficits over the next decade by some $4 trillion. at the same time getting reform of our entitlement, tax reform, bipartisan comprehensive and would not just be ideal, it would actually be a solution to the challenge that we face. their work is reinforced by the gang of six, three democrats,

three republicans, and, unfortunately, my view unfortunately, the president eventually followed the lead too late as it turned out, and the leaders of the house and the senate didn't follow it at all. and that's a sad -- a sad thing i think for this country. as a result we settled this week for a bill that reins in discretion spending, does little to tackle our long-term financial challenges. in short, again, it was a deal not a solution. not a very good deal as far as i'm concerned. it failed to cure our serious disease of debt and deficits. unfortunately, we put off for tomorrow the early next year what we ought to have been doing right now. as senator brown has seen, my staff feels that way, but i keep saying as long as i'm around here a lot americans believe that those of us here in washington are not capable of

taking the difficult steps that are necessary to put our country back on the right fiscal track. given what's happened in recent weeks, you can see why they feel that way. they don't think we can do the hard work that we are hired to do. effectively manage their tax dollars to entrust us with. they look to spinning and the tax decisions we made in recent years as poor management. they question whether we are capable of making the kind of cuts and decisions that american families make with their own budgets. and i don't blame folks for being skeptical, and light of things we've seen in recent months. now more than ever we need to establish a different kind of culture here in washington when it comes to spinning. we need to move from what i described in many times the culture of spendthrift to the culture of thrift. this shift must involve looking at every nook and cranny of the federal government and asking this question about all kinds of

programs, how to get a better result with less money. or how to get a better result with the same amount of money. when it comes to property management it's clear to me that we can do better result and we could save money. federal property management has been on the government accountability office high-risk list since january of 2003. part due to certificate amounts of excess property. this problem is coupled with federal agencies depend on costly too often costly leased space to meet new space requirements although building ownership has proven to be more cost effective over time. not always, but often times. the most recent comprehensive data table shows federal agencies apparently possess more than 45,000 underutilized buildings, totaling more than 340 million square feet in space. these buildings cost nearly $1.7 billion annually to secure and to maintain. fixing that problem doesn't

balance the budget but it's a great step in the right direction. in addition for the past 20 years gao has been telling us we've been too reliant on leasing since 2008 gsa has lease more property than it does. and in fiscal year 2011 the 18th you spend over $5 billion to house federal employees and 184 million square feet of private office space. in addition gsa serves as the central leasing agent and is responsible for managing and updating space for agencies and agencies have obtained their own leasing authority, and in doing so have chosen not to take advantage of gsa's expertise, in federal real estate. given many of these agencies like experience in performing lease procurement, they often combine the government into costly obligations that result in millions of dollars of additional cost to the federal government. actually tens of millions, maybe even hundreds of millions of extra dollars in costs. the u.s. security and exchange

commission, we know this all too well but it's an agency that has been granted independent leasing authority along with some other agencies. in july 2010 the commission entered into a sole-source lease for 900,000 square feet of space in a privately owned building called constitution center in washington. of these would've cost taxpayers some 560s million dollars over 10 years, although the sec has held independent leasing authority for more than 20 years. the commission's inspector general has found that the agency still lacks adequate policies and procedures for managing its leasing actions. this was the second time within the past five years in which the sec was involved in an unnecessary expense of leasing arrangement. unfortunately, this is not the only agency that operates this way. similar in 2006 the fbi executed a 30 year operating lease to house employees in the chicago field office that cost $40 million more than

construction over a 30 year period. both congress and the obama administration are united in a commitment to invest in these issues. the president's latest budget included a recommendation to form a civilian property realignment board, review the government's property portfolio and dispose of those deemed excess in an expedited manner. i think if i'm not mistaken senator bennett may have introduced legislation to codify that proposal. this is a proposal that my colleagues and i on homeland security had an opportunity to examine other tonight real property hearing. other proposal folks is primarily assisting agencies in the disposal of excess and underutilized buildings, it does provide opportunity consolidate our co-locate operation which can help reduce the government's leasing portfolio. i have concerns about the cost and effectiveness of the presidents approach but i look forward to taking what works in

his proposal, and senator brown's legislation, along with other ideas and introducing a bill in the fall that will help right size the government for vote anyway that is advantageous for federal agencies, for committee stakeholders and the clientele served by those agencies. clearly the momentum is building to address a wide a recognized problem. yet in all of our zeal to save we must be intelligent in our approach. in rome i was told was not built in a day, the federal government bloated property for photo cannot be unbuilt in a day. women opportunity to do this right, to change without him it manages its hundreds of billions of dollars worth of assets. that said the agency shouldn't be waiting for somebody to -- begin to solve the property management problems now. in the era of shrinking budgets and scarce resources, it's critical agencies come up with innovative property management tools that would identify

opportunities to right size i real estate portfolio, reduce costs and achieve savings by eliminating unneeded assets and expensive long-term space. before i turned over to senator brown, let me say every now and then, i'm sure scott has noticed this, we misaligned incentives. we misaligned incentives and the federal government. we incentivize the wrong kind of behavior. and then we get the wrong kind of results. what we do in the federal, we incentivize a lot of federal agencies to lease. the incentives are to lease. with the way that we, if you want to buy deliver something like that up front, it may not make sense long-term. we incentivize with the way we score that expenditure in the first year as opposed to leasing which could be scored for 10, 20, 30 years or even longer. one of the things i hope it comes out of this hearing today discussion on how we change those test, get improperly online.

we need better fiscal constraints of or contradicts i look forward for this hearing, we both do, share with us your thoughts. with that i'm happy to turn over to senator scott brown from massachusetts. >> thank you, mr. chairman. thank you to our witnesses. i would venture to guess we are the only hearing in d.c. right now. and it's interesting listening to mr. chairman, and i want to thank you for holding this important hearing, through a lot of our efforts, your efforts, we've been able to put the spotlight on some of the programs that just aren't doing it right. and it's funny, half a billion dollars, at least office space, it just blows my mind how we get in these situations. and people wonder where the money is going. it's very clear where it's going. it's going some places very poorly chosen, whether it is lease spaces, programs, whether

they be military programs that are not working or obsolete, but we are just wasting money all over the place. in the middle of a financial emergency, i find that very disturbing. and that's what i was proud to put party politics aside and work with the president and congressman denham on civilian property realignment act, or cpr a, the bipartisan legislation that you referenced will bring private sector discipline to the management of federal real estate and will empower an independent commission to break the long-standing barriers created by red tape and politics to facilitate the disposal and dilemma of a new federal property. this bipartisan approach will address a problem gao has designated as a high-risk area and would achieve savings of approximately $15 billion. that's real money when we are trying to make some very real and tough decisions in the next couple of years. and it's funny, time and time again government agencies have

proven they can't properly manage their own real estate. and today as we all regret this, both of us, that half a billion dollars in market, on lease space, really will never be efficiently and properly. and not only did it in into this wasteful these, the sec as was referenced, but they did so, so they could spend their workdays quite frankly in a lavish building, complete with panoramic views of the city, limestone floors, marble walls and a landscaped courtyard that was transformed into a one acre private garden. i guess it's nice if you can get, especially when it is at the taxpayers expense. i came to washington to look at the way we spend our dollars, to be a fiscal watchdog senator, to address our fiscal challenges so we don't have to leave young americans with the capital they can afford anymore, mr. chairman. so i'm looking forward to your

to making those tough decisions. we started already. we will continue to work in net income and hope to gain the confidence of the american people once again. so look forward to hearing from our witnesses. >> thanks very much for that statement, and let me just take a moment to introduce each of our witnesses. a hokey, a hokey from virginia tech is here to lead off. david foley, deputy commissioner of the public buildings service and u.s. general service administration in 2010. he is responsible for the real estate operations of the agency, previously served as deputy assistant commissioner for portfolio management at gsa and worked a number of leadership roles within gsa and offices in dallas, kansas city, and atlanta. mr. foley, as a graduate of missouri state university, masters of business administration from home of the hokies, virginia tech. mr. jim sullivan, also known as

james, director of the office of asset enterprise management of u.s. department of veterans affairs. it seems like we pick on the g8 a lot, and we actually use them a lot of times i'm agencies do things well. sometimes folks in the sense they just like, they like to conduct catchier and. what we like to do is sort of when folks are behaving in in a private ways we like to put spotlight on them. when agencies are managing a behaving in a more ways, we like to put spotlight on them and many number of times we've done that with the va. mr. sullivan assumed the leadership role in 2009 after serving as the deputy director since 2000 -- i guess since may 2002, something like that. you're now the director of the office of asset enterprise management, and mr. sullivan has over 25 years of experience of capital budget, budgeting and planning and asset management. he plays a pivotal role in

managing with a large portfolio portfolio of property in the federal government. including delaware. the honorable david kotz, like i want to sleep and a lot of cops? okay. david kotz has served as expected, for the security and exchange commission since december 2007. prior to joining the sec mr. kotz or does inspector general for the peace corps, and practice federal administrative law for a decade in the private sector to inspector general potts is a graduate of the university of maryland which makes him a terrapin, and a cornell law school. jeff heslop was named the u.s. securities and exchange commissions first ever chief operating officer in may of 2010 commuters bought for the agency's information technology our natural reporting and record management duties. prior to 20 sec, he was managing vice president at capital one which is just acted to acquire

ing direct in delaware right in my hometown. and capital one mr. heslop was responsible for companies information and risk management operations. he received his bachelor of arts degree from davidson college. davidson college, when did you graduate? 76. john spratt, congress and john spratt is one of your graduates as will. do you know who the president is there no? [inaudible] >> she is from delaware. delaware. she just became your president. the first of this month. i think the first woman really of the calls. and you have your masters in business administration from college of william and mary where my youngest son will start his senior year this fall. great school. david wise is greater for fiscal infrastructure issues at the u.s. government accountability office, actually known as gao. he specializes in transportation and communication, federal real property issues.

is career dates back to 1981. mr. wise has a bachelor of arts in political science from university of pittsburgh and a masters in public administration from its graduate school of public and international affairs, and now that the nfl strike has been averted or lockout has been averted as good as my first question of you, what nfl football team will you be rooting for this fall? [inaudible] >> all right. welcome one and all. your entire state will be made part of the record if you like to summarize that would be great. we are asking you to keep your remarks roughly five minutes. a little beyond that that is okay. if you go way beyond that that is not okay. just go ahead and watch all finished, senator broun and i will take turns taking questions of you. mr. foley, please proceed. >> good afternoon chairman carper, ranking member brown, i appreciate being invited here today to discuss gsa's efforts to reduce our reliance on lease

space. our approach to lease acquisition and how we manage delegations of authority. gsa searches for the most cost effective ways to provide space for federal agencies to help them achieve their mission. our first priority is to use existing government owned space and in leased space already under contract to the government. when existing space is not available jesse determined the best method to acquire new space, whether through leasing or new construction. we consider the size, duration, cost and complexity of the requirement for most long-term needs, especially those with unique requirements like courthouses or land ports of entry. it is more cost effective for the, to build and own leased facilities. for small short-term general office requirements, leasing from the private sector is typically more economical. gsa currently manages an inventory of over 370 million square feet of space, of which roughly 191 million is leased from the private sector. approximately 80% of our 9000 plus lease is, are for the small

short-term needs that are less than 20,000 square feet. our lease acquisition process entails carefully sequenced steps to ensure adequate competition and a fair rental rate for taxpayers what you outlined in my written statement. gsa has multiple internal controls in place or largest leases with annual rental payments that exceed $2.8 million. these leases require additional reviews within the gsa and omb along with perspective of approval by gsa's congressional authorizing committees. this process ensures any growth in cost from staffing or increase our support in the presence budget and are transparent to congress and the public. since real property was identified as a high-risk area by gao in 2003, gsa has worked closely with federal agencies to maximize the utilization of the space. at the end of fy 2010, the vacancy rate in gsa's lease inventory was less than 1%. gsa and the administration have

also made it a priority to reduce the cost of leasing by minimizing the need for build to suit projects, adjusting requirements to maximize competition for existing space, purchasing leased assets to great federal ownership, and converting costly leased proposal into the federal building renovations or new construction projects. for instance, in 2010 gsa exercise a purchase option for columbia plateau, a long-term lease here in washington, d.c.. the fy. the fy 2010 provided funding for the field office in miami. this project had previously been authorized as a lease proposal. in fy 2012 gsa's budget request contains funny that would retrofit the phillip burton federal building in san francisco, california. this would satisfy an fbi requirement and avoid a costly lease proposal saving taxpayers almost $100 million over the next 30 years. congressional cuts to the president's budget threatened his progress.

in fy 2011 alone several key projects in the president's budget were not funded, including the next phase of the dhs consolidation in saint elizabeth ann to purchase option for an irs lease in martinsburg west virginia. failing to move forward with these projects will result in the government's continued leasing of space, costing taxpayers millions more in the long run. additional cuts in fy 2012 would only make the situation worse. gsa has been aggressive with another opportunity for savings by improving the efficiency of the federal inventory to facilitate consolidation of leases into government owned space. our gsa headquarters is a good example. by renovating the building and opening up a floor plan we can increase the number of occupants from approximately 2500, to 6000 people. this will allow us to eliminate multiple leases, saving taxpayers millions of dollars annually. gsa as you mention is not the only agency that leases on behalf of the federal government.

more than 20 of agencies and commissions like the va and sec have their own statutory authority to homeland and acquire leasehold interest. gsa is not usually involved in these transactions. some agencies also leased space under a delegation of authority from gsa. agencies using this delegation must abide by the same laws and controls that govern gsa and certify that a properly worded lease contracting officer to conduct the procurement and execute the lease. we are involved in these transactions to provide the appropriate levels of oversight. in conclusion, gsa strive to maximize the utilization and minimize the cost associated with leasing. we're continually looking for ways to streamline, standardize and simplify our leasing process with the appropriate controls to maximize competition and find the optimal solution for taxpayers while helping agencies achieve their mission effectively. thank you for inviting me to appear before you today. i appreciate the opportunity to

discuss va essays leasing practices and expertise, and i welcome your questions. >> thanks. thanks much for your testimony. mr. sullivan, please proceed. >> thank you, chairman carper and ranking member brown, think for the opportunity to appear today to discuss the department of veterans affairs and management of its capital asset portfolio. and more specifically it's lease of property portfolio. at the outset let me say the eight evaluates all of its capital decisions, including leasing, based on three following critical principles. ..

and other medical related functions. va interest across the nation. one of the primary goals is to provide service to veterans and their families where they live. not rolled hospital are but where veterans need care. in many cases leasing provides more flexibility to meet demographic shifts, changing service demand, improvements in medical care and benefit care delivery tarnation's the veterans. the need for space is identified through the strategic capital investment planning process. va evolve your capital investments depending on how well they address performance gaps that identify

infrastructure or services needed to enhance or meet needs of current and future veterans. only investments scored well against these for funding and authorization. va considers size and mission criticality between building and lease. construction of care facilities are the most cost-effective solution to our needs. smaller facilities like outpatient or ambulatory care centers can be acquired more efficiently using leasing as they meet changing demands in technology. va follows gsa regulation and complies with contracting requirements in conducting its lease procurements. real property service had years of experience managing robust leasing programs, employee and

skilled workers with highly trained realty specialists and certified contract and officers. oversight is provided through an extensive series of checks and balances. all leases in excess of $1 million require congressional notification and authorization. congress is notified of significant change in cost or scope of authorized construction projects. in addition va has been granted by congress enhanced leasing authority that provides innovative process to partner with public and private sector entities for 75 years. return va received negotiated monetary consideration. the property is developed and maintained for use of the support of va's mission. allows va to reuse properties to meet mission related needs like

veterans homeless housing. the program results included significant cost savings and substantial private investment in capital infrastructure. in the last six years va has received $260 million from this program. the authority to enter into this program will expire on december 31st of this year without reinstatement, va will lose a well needed tool to help us manage our property more effectively. the department understand the importance of a balanced real-estate portfolio to address its needs. va has a rigorous process that takes into account current and future needs of america's veterans and tries to maintain a mix of investments of don't and least aspects to obtain strategic goals and ensure the highest level of performance of our assets. i thank you and the subcommittee for the opportunity to be here and we will answer any

questions. >> mr kotz. >> thank you for the opportunity to testify. i appreciate the interest of the chairman and ranking member. on november 16th, 2010, we opened an investigation as a result of numerous written complaints concerning the decisions and actions of the sec related to leasing of space at the constitution center office building in washington d.c.. we analyze thousands of pages of documents and interviewed 29 witnesses surrounding the sec's leasing of space and surge 1.5 million e-mails pertinent to the investigation. on may 16th, 2011, we issue a report of our investigation containing 150 exhibits. we concluded based on estimates of increased funding, between june and july of 2010 the sec office and administrative services conducted a deeply flawed analysis to justify the need for the sec to lease 900

feet of square feet of space. they grossly overestimated the space needed for the expansion by 300% and use these unsupportable figures to justify the sec committing to an expenditure of $556 million over ten years. they use the standard of 400 square feet to calculate how much space would be needed for additional positions it believed it would gain. this included amenities and additional 10% for contractors and in turn the and temporary staff and 5% for future growth. 400 square feet per person standard was described as a back of the envelope calculation. when they did calculations to justify the lease it added more unnecessary space by double counting contractors, internes and temporary staff. each of these estimates with inflated and unsupported by the

data. the sec committed itself to the ten year lease term at cost of $500 million and entered into a justification and approval for other than full and the open competition. the documents required by the regulation bar. the bar permits other than full and open competition when the agency's needs give up an unusual urgency that the agency would be seriously injured unless the agency is permitted to limit the number of sources from which it is listed. we found justification and approval for least based constitution center without competition with inadequate, not properly reviewed. the oas official who signed the approval acknowledged in testimony the sec would not be seriously injured if it lost the opportunity to rant the constitution center space and she took no substantive steps to verify the information was accurate and when she signed the document she was unaware of the

funding had not been appropriated and she did not have an understanding when the projected personnel were expected to be hired. it also requires the justification and approval be posted publicly within 30 days. as the letter was signed on july 28th the deadline for publication of justification and approval was august 22nd but the sec did not post it until september 3rd. the document was signed by four individuals dated august 2nd the investigation found justification and approval was not finalized until september 2nd and substantial revisions were being made. we found three of four signatories executed the signature page before a draft was close to the final version. we found the sec competition advocate executed the signature page on aug. 30 first and initially backdated her signature to august 27th and voided out to make it appear she signed it on august 2nd.

the actions of the signatory suggested the public have the false impression the document was finalized a few days after a contract was signed. in light of our findings we recommend the sec chief operating officer conduct thorough and comprehensive review of all matters under purview of of a s and recommended chief operating officer determine the appropriate disciplinary action to be taken. it should include at a minimum action up to and including dismissal against two senior individuals and disciplinary action against a third individual. we recommend the sec request a formal -- with the commission violated anti deficiency act by failing to obligate funds for the constitution center. we received a corrective action plan with regard to the substantive recommendations we made. we will monitor the planned activities carefully that the necessary improvements are made and the individuals we identify as being responsible for

failures in our report are held accountable for actions. i will be happy to answer any questions. >> senator brown as you were going through that litany, i said what were they thinking about? mr. heslop, please proceed. >> thank you for the opportunity to testify. can you hear me? can you hear me now? >> i can hear you now. >> thank you for the opportunity to testify on behalf of the chairman of the sec leasing the office space center and the steps we're taking going forward. the report by the inspector general concerning constitution center had a number of flaws in the leasing process. we were disappointed by the failures identify and regret they have taken us from our primary mission of protecting

investors, facilitating capital formation and ensuring stability in the financial market. the fact that the sec has not paid rent and it has been leased to other tenants does not address the situation that should never have occurred. the only appropriate response by the sec is to resolve the remaining space issues, correct the deficiencies by working with gsa and omb with respect to future needs and ensure accountability for events surrounding this lease. by way of background in spring of 2010 the sec anticipated it would receive significant new responsibilities under the dodd-frank act for derivatives to be personal credit rating agencies and more. this was on top of our core responsibility. as a result we believe the sec needed additional staff to fulfill its mission and further restore investor confidence. at the time the agency was considering leasing decisions

chairman shapiro indicated her preference for hiring new staff in regions rather than headquarters and indicated her preference that any new space in washington be within walking distance of stations base buildings to eliminate the need for expensive shuttle service. in july of 2010 the executive director who was responsible for the agency leasing activities informed the chairman all our leasing options no longer existed and the space at constitution center with our only option given space needs and pricing was advantageous and we had to move quickly as there was competition for the space. given previous discussions the chairman assumed the proposal was consistent with budget projections, future employee growth and preference for staff to be held where possible in the region. when it subsequently became clear the sec would not receive the funding necessary to implement its new responsibilities we took steps to release the space to others and reduce the sec's exposure.

my written testimony details what we learned from the flaws in the leasing process and how we will address them. i would like to emphasize a few of these. we are probably implementing recommendations and submitted keep corrective action plan. in light of the failure to identify the sec recognizes the benefits of having gsa manage future lease acquisitions. leasing is not part of the commission's core mission and we cannot allow it to impede that mission. gsa has experienced leasing. in recent meeting at gsa we discussed with gsa administrators with gsa could assist the commission of leasing efforts going forward. gsa indicated it was open to playing a significant role in these efforts and commission staff had further discussions with gsa staff. earlier this week the sec and gsa entered a memorandum of

understanding that contemplate immediate role for gsa managing releasing activities as well as all other future leasing needs as they arise. third the report recommended the sec initiate disciplinary proceedings for three individuals involved in the constitution center leasing process and we have begun that process. chairman shapiro expressed a desire for the process to move forward as quickly as laws and regulations permit consistent with fundamental fairness to implement remedial measures and discipline as appropriate. in the meantime the individuals for whom the report recommended a disciplinary review have been reassigned. their current duties do not involve leasing or other of 40 or activities that relate to the expenditure of appropriated funds. the true test of an organization is not whether things go wrong but how am organization response to problems and whether its leaders take such opportunities to make necessary improvements.

we are committed to doing that. i will be happy to answer requests in. >> mr. wise, wrap up and we will go to q&a. >> members of the subcommittee, thank you for the opportunity to testify today on property leasing among federal agencies. the federal real property portfolio totals 900,000 structures worth billions of dollars. my testimony will address the factors that contribute to government reliance on leasing, how the administration civilian property realignment act may provide an opportunity to reduce reliance on leasing and federal agencies independent leasing authority and delegation of those authorities. one of the primary reasons we designate federal real property management of high risk is federal government over reliance on costly lease space to meet its needs. our work has shown operating leases cost more than ownership

for long term needs. increasing ownership when appropriate could face millions of dollars over the long term. federal agencies rely extensively on leasing. at an end of 2010 gsa square footage exceeded 1 seventy-nine million. gsa has relied on operating leases to be long term needs because of lack funds to pursue ownership. the decision to lease rather than own space for federal operations is influenced by factors other than cost-effectiveness including but opera shoes -- issues. the budget authority is to meet the government real property needs been recorded in the budget in the amount equal to the government's legal commitment. gsa construct a building of the budget authority must be recorded up front to reflect the financial commitment. for operating leases gsa is required to record the government commitment for annual lease payments and any potential

feet for canceling the lease. this upsets the funding commitment that costs the government more overtime. we raised the issue as a challenge that needs to be addressed. we believe if the issue is not addressed the reliance on leasing will persist. in 2007/2008 we recommended omb develop a strategy to reduce reliance on costly leasing where ownership could result in long-term savings. the strategy is not implemented. agency requirements are among reasons it is referred by agencies. officials said 200 gsa buildings were damaged by hurricane katrina necessitating relocation of 2600 federal employees from 28 federal agencies many of which were tenant agencies. gsa is to how the agencies in temporary space to fulfil short-term needs. in may of 2011 the

administration proposed surprise to release reliance on leasing. it does not address this issue but one of its purposes is to realign real property by consolidating space to reduce the government reliance on leasing and provides potential relocation of civilian offers in postal properties many of which already owned. we're leasing facilities in federally owned sites for this subcommittee. congress authorized many agencies leasing authority allowing them to acquire leased space. this may be for particular type of space or general leasing authority. agencies with such authority are listed in appendix 1. gsa may delegate leasing authority. all federal agencies may require a specific type of space like

greenhouses. 13 federal agencies are authorized to meet their own special purpose subject to limitations. the commerce department delegated authority to lease space. in november of 2007 gsa delegated authority to increase oversight after audits found agencies failed to meet conditions of leasing delegation. gsa's goal is to cover the costs, it has been unable to do so in recent years losing $100 million in fiscal year 2009 raising concerns about the agency's management of leased property. we are examining this issue for the subcommittee. this concludes my statement. i will be pleased to answer questions from you and other members of the subcommittee. >> i've asked heslop to lead off.

>> mr kotz, appreciate your opening. during the time we made the recommendations of disciplining three people what impact has been done? >> i am told there is a process in place but i don't believe anyone has been disciplined or any proposal has been made. >> it has been over a year since you entered into this lease arrangement. what does it take to get disciplined when you enter into a lease that is a billion dollars? are should ask you what does it take to get fired at your agency when this happens? >> your report was issued on the seventeenth of may of this year and since that time we followed

mr. kotz's guidance. general counsel analyzed it in great detail. we conducted supplementary investigations and supplementary interviews. there was a slight cold when mr. kotz referred to the department of justice, individuals mentioned in the report as a matter of practice. we don't complete investigations or name the individuals until the department of justice gives us there okay so we can so it doesn't interfere with their investigation. the investigation began to proceed. as it unfolded it became apparent that in the interest of objectivity and fairness it would be in our best interest to hire an external party to help us conduct that investigation and we are in the process. >> in fairness to the taxpayers,

getting the best bang for our dollar, you were with the sec when this happened. >> i was hired on the seventeenth of may, 2010. >> you have no knowledge of this. >> this was not under my purview. >> based on these failures you we seem to hear over and over let's talk about the sec. do you think congress should invoke the independent leasing authority? >> congress should get serious consideration to that. if the sec completely revamped its leasing area given another opportunity, i do understand chairman shapiro and mr. heslop intent to get out of the leasing business if they fear there is enough competence to handle that so it would be prudent to take away the leasing authority.

>> mr. wise, thank you for your introduction. i have filed a bill that basically mirrors the president's idea how to address these issues when it comes to leasing and buying. i was wondering if you could describe the realignment of civilian real property by consolidating and reconfiguring space to increase the efficiency. do you think that can reduce the government's over reliance on leasing? you hinted at it in your initial are putting -- opening. >> cipra does not discuss leasing but has a provision we think would be useful to help

alleviate reliance on leasing government has with talk about co location and realignment of the federal footprint. as we go forward if cipra becomes the notified there is a good possibility it could be a contributing factor toward reducing the government reliance on costly leasing. >> you said it takes $1.66 billion to operate and keep open the underutilized buildings. i found that really fascinating. i went back to the office and we are trying to come up with ways to address it and get those properties out the door and get them into the tax rules and the like. one of my goals is to address these. how do we unlock these savings

for taxpayers? >> as you allude to in your statement the key thing with for the federal government is to get out from leases that are not useful for the government. operations and maintenance costs keep recurring year after year so as we move forward and cipra becomes law hopefully this will lead for the government's ability to get out from under leases that are not useful and share property that is not being utilized in various ways. >> in massachusetts when we were having financial difficulty the registry of motor vehicles were closed and a lot of leases were canceled at government convenience and we were able to find spaces to put them in whether it be at a post or city hall for state-owned building or work an arrangement with the federal government. i would hope we could do the

same thing. plenty of federal buildings where we could co locate and combine. how does gsa leverage to support the cipra process, specifically lease consolidation? >> gsa is a leader for the federal government and we have a strong leasing process. we are working with client agencies -- >> that is a strong leasing process. i don't understand how we get into these messes. please finish your statement. how do we -- why are we having this hearing today? such the great process, why are we not doing it right? >> one of the key things is working with agencies to make sure we shake the requirement so we know how many people we

ensure we are getting the most utilization out of it and make sure we can fit into existing federal space wherever possible or minimize the space we have to lease from the private sector. we are working with agencies on that. i thank you for your support of the cipra bill and we look forward to working with you on that. that will do several key things to help us with consolidation that incentivizes agencies to get rid of property and more critically provide a source of funding to deal with up-front costs. a lot of people think that is towards getting property ready for sale but when intent is to help existing federal property to retrofit those and make more efficient to consolidate out of leases or build or buy a new facility to consolidate and shrink the federal footprint. we have a real opportunity and look forward to working with you on that. as far as your question of if we

have a solid process how do we end up in these situations? there are multiple agencies with different authorities. the sec list was done outside gsa's authority so we were not involved in that transaction. we are working closely with them moving forward and willing to lend our expertise and as mr. heslop indicated we signed an agreement where we will do their leasing actions for the moving forward. following the transparent process we use gsa. >> thanks for the responses. a little time this week talking in light of the deal to avoid default, spend time talking with my colleagues and the american people about how we have a

tendency around here to focus on addressing symptoms rather than underlying -- underlying cause of the disease. in a situation where federal government -- the debt ceiling crisis. we don't spend money wisely and don't collect all the money that those. what we ended up doing was not the underlying cause but the symptoms. leave to another day addressing the underlying cause. in reading through the testimony i came back to the question, one of the things when