ing day, dated September 23, and you sent it to his home address rather than his office address. I wondered why that was. It was apparently a business matter.

Mr. JAY. I don't even know where his home is. It makes sense to me—I imagine that is what happened-the answer was probably sent back to the return address he had on the envelope he sent. I presume. I don't know.

But I presume that would be the reason it would go to his home. Mr. BROOKS. Two days after writing Mr. Burns that you couldn't look into it personally because you apparently had an operation, or illness, you referred it to Mr. Lund and asked him to get the facts, and then report to you on corrective steps taken. Did you assume then that there were corrective step necessary?

Mr. JAY. No; if I had added the words "if necessary" it would have been nicer.

Mr. BROOKS. It looked sort of like

Mr. JAY. I didn't mean it that way, though. I didn't mean it that way. The intent of that letter to Mr. Lund was not only to look into this incident, but to take whatever corrective steps were necessary, to retell, to reinstruct the employees of the necessity of their being proper to people that call on us.

There was a completely open mind as to the right or wrong of what had happened. I didn't know.

Mr. BROOKS. Just don't let it happen any more and get it straightened out, is what you meant?

Mr. JAY. That is exactly what I meant.

Mr. BROOKS. Had you told Mr. Lund to write it up and put it in his personal file?

Mr. JAY. No, sir; I did not.

Mr. BROOKS. Is it your understanding that there is a policy in GSA that no disciplinary action will be taken on higher grade employees without the approval of the Commissioner?

Mr. JAY. The Commissioner?

Mr. BROOKS. You. In this instance your own approval.

Mr. JAY. Yes. I don't think there is a written policy. I think that is a policy that we more or less adhere to there.

Mr. BROOKS. I think that is true in the central office.

Mr. JAY. I think it is a policy.

Mr. BROOKS. I wonder if it is your practice here for discipline or a serious discussion, as to their efficiency and operation, to be taken up by yourself?

Mr. JAY. Not taken up by me, but brought to my attention.

Mr. BROOKS. Brought to your attention and you approve them or disapprove them before final action is taken?

Mr. JAY. I will say I approve or disapprove action of the staff member who brings it to me.

Mr. WALLHAUSER. Mr. Chairman.

Mr. BROOKS. Mr. Wallhauser.

Mr. WALLHAUSER. Have there been other examples of that grade or higher?

Mr. JAY. No. We don't have too many 14's, Mr. Wallhauser. We have maybe a dozen. This is the first case.

Mr. BROOKS. This is the first case?

Mr. JAY. That is right, sir.

Mr. BROOKS. So that there has not really been any established practice?

Mr. JAY. No; as I say I don't know of any written policy or practice. I think my people would bring anything to my attention of this nature. I am sure they would.

Mr. BROOKS. It seems like you really could have taken about 15 minutes to talk with Mr. Warren before you checked out. It seems to me if he is one of your few grade 14's that you have.

Mr. JAY. That perhaps is right, sir.

Mr. BROOKS. I would like to ask you about the Third Recon matter. I wonder if you could tell us how many similar leases Mr. Ray or Mr. Rice have with the Government?

Mr. JAY. From memory, sir, and there may be more, I know of two. One is the district Veterans' Administration office on Linwood Boulevard. One is the district VA office in Lincoln, Nebr. And this is the third. To my knowledge that is all. There may be more.

Mr. BROOKS. Would you have your staff check and give us an idea if there are any others?

Mr. JAY. I certainly will. May I jot that down?

Mr. BROOKS. Of course.

Mr. Lund ought to have that done for you

by the time you get back to the office.

On those leases, were the buildings converted after Mr. Ray and Mr. Rice were assured of the lease, or were they converted first and then offered to the GSA?

Mr. JAY. They were converted after the lease was signed with the GSA.

(The information requested was furnished in the following letter :)
GENERAL SERVICES ADMINISTRATION,
OFFICE OF THE REGIONAL COMMISSIONER, REGION 6,
Kansas City, Mo., April 4, 1960.

Hon. JACK BROOKS,
Chairman, Subcommittee on Government Activities, Government Operations,
House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: When you were in Kansas City on March 25 and 26, 1960, you requested we furnish you a listing of all properties which we lease that William D. Ray and Ralph W. Rice, Jr., either singly or together, have an interest in.

These leases are as follows:

1. 2420 Broadway, Kansas City, Mo.: Lessor, Recon Corp. III; interest, William D. Ray and Ralph W. Rice, Jr. (both have an interest); area, 50,200 square feet of office and storage space; occupant, Armed Forces; effective date, January 1, 1960; lease term, 3-year firm initial term.

2. 17th and N Streets, Lincoln, Nebr.: Lessor, Recon Corp. of Nebraska; interest, William D. Ray only has an interest; area, 25,910 square feet of office and storage space; occupant, Veterans' Administration regional office; effective date, January 1, 1960; lease term, 5-year firm initial term.

3. Professional Building, Sixth and Center Streets, Hannibal, Mo.: Lessor, Recon Corp. II; interest, William D. Ray only has an interest; area, 2,400 square feet of office space; occupant, Social Security Administration, old-age and survivors insurance; effective date, July 1, 1959; lease term, 5-year firm initial term. 4. 911 Linwood Boulevard, Kansas City, Mo.: Lessor, Recon Corp.; interest, William D. Ray and Ralph W. Rice, Jr. (both have an interest); area, 67,962 square feet of office, clinic, and storage space; occupant, Veterans' Administration regional office; effective date, July 1, 1958; lease term, 5-year firm initial term with a right to cancel a part of the space after 3 years.

Others, in addition to William D. Ray, have an interest in the leases at Lincoln, Nebr., and Hannibal, Mo., but Ralph W. Rice, Jr., is not one of such persons.

Sincerely,

THOMAS G. JAY, Regional Commissioner.

Mr. BROOKS. Have you known Mr. Ray and Mr. Rice for a number of years?

Mr. JAY. I had never met Ralph Rice before-to my knowledge. I had met Bill Ray casually sometime during the past. But very casually.

Mr. BROOKS. Where did you know him? Do you all belong to the same organizations?

Mr. JAY. This I don't even know, sir.

Mr. BROOKS. Country club?

Mr. JAY. I don't know where I would have met him. ProbablyMr. BROOKS. To what extent would you have entered into negotiations on this lease?

Mr. JAY. I didn't enter into any of the negotiations on the lease. I interested myself in the lease in regard to the fitness of the location, the desires of the agencies that were going to be in it, the savings which they claimed they would make. They bring the highlights to me and discuss them with me, not the details.

Mr. BROOKS. The reason I was asking is that the article in the Kansas City Star, which Mr. Lund did not think was accurate, dated January 17, 1960, in describing the building, said:

Leasing arrangements were handled through the General Services Administration, specifically Thomas G. Jay, GSA commissioner here, and Earl Lund, an associate.

That is why I wondered if you actively participated or

Mr. JAY. This is untrue, sir. It is done under our supervision but not directly. I talked to the agency heads that were going in. I looked at the complex in the neighborhood, study the costs, and that is my area.

Mr. BROOKS. Did the reporter talk with you? Or did they just pick up the story from your office and otherwise?

Mr. JAY. No, the reporter did not talk to me.

Mr. BROOKS. Did not?

Mr. JAY. Absolutely not, sir. If you are referring to the first press release that came out on the Recon building.

Mr. BROOKS. I am referring to this story that came out in the Kansas City Star-show him the story, in case there is any doubt. (The document was handed to the witness.)

Mr. BROOKS. It may have been based on a press release. I don't know.

Mr. JAY. On this press release, sir, I talked to nobody with the newspaper. It surprised me as much as it did anybody else when it hit the paper.

Mr. BROOKS. I notice it said that Third Recon had purchased the building when they had a lease on it. You apparently didn't talk to them and have no idea where they go that impression?

Mr. JAY. I have no idea.

Mr. BROOKS. Did you know prior to Mr. Lund's letter of acceptance of the offer on August 14 that the Third Recon wanted to change the option terms to two 3-year periods?

Mr. JAY. No, sir.

Mr. BROOKS. Do you think that Third Recon had any difficulty financing the cost of remodeling with the Government lease as security?

58364-6014

Mr. JAY. I don't know, sir. I don't know what difficulties. If they have as much difficulty financing anything as we have trying to finance that motel, they are having a lot of trouble. But I have no idea what troubles they have. I have never talked to them about it.

Mr. BROOKS. If you can sign a lease with the Mecca Hotel for 3 years, with two 3-year options, at that amount, you could probably improve your financing possibilities considerably, don't you think? Mr. JAY. A Government lease, Mr. Chairman, is certainly an aid in receiving a loan.

Mr. BROOKS. A considerable aid?

Mr. JAY. A considerable aid. If the terms

Mr. BROOKS. Bankers like them.

Mr. JAY. Excuse me?

Mr. BROOKS. Bankers like them.

Mr. JAY. It is a considerable aid. If the term is long enough to effectively

Mr. BROOKS. Amortize?

Mr. JAY (continuing). To affect the loan, yes.

Mr. BROOKS. Am I right in thinking that Third Recon will not have to exercise the option to purchase the warehouse property at $275,000 until after the Government is required to notify them of the intention to renew or vacate on that first 3-year option?

Mr. JAY. I don't know. I would have to again have the files brought up. I haven't inquired into that.

Mr. BROOKS. Is there somebody on your staff who might be aware of that?

Mr. JAY. Mr. Knight.

Mr. BROOKS. He is the keeper of the files?

Mr. JAY. He is the real estate officer who handled this transaction. Mr. BROOKS. Do you understand what I was trying to find out, Mr. Knight?

Mr. KNIGHT. Would you repeat it?

Mr. BROOKS. Yes, I will.

My question is, Was I right in thinking that it will not be necessary for the Third Recon to exercise their option to purchase the warehouse property until after the Government is required to notify them of their intent to exercise their first 3-year option or to vacate?

Mr. KNIGHT. They wouldn't have to.

Mr. BROOKS. They would not?

Mr. KNIGHT. They wouldn't have to exercise the option, it is true. They would not be bound to. According to the lease that they have, they have to exercise it prior to the 3 years, I believe, as I remember it, at the end of the first 3 years.

Mr. BROOKS. And the Government has to give them a 90-day notice? Mr. KNIGHT. Right.

Mr. BROOKS. So they will know, prior to exercising their option to purchase, whether or not the Government intends to exercise its renewal for a 3-year term?

Mr. KNIGHT. Would you repeat that?

Mr. BROOKS. It may be a little involved. I am not explaining it too carefully.

The Government gives them a 90-day notice as to whether or not they are going to leave or stay under their option. Right?

Mr. KNIGHT. Right.

Mr. BROOKS. They have to exercise their option to purchase it shortly before the end of that period, but well within that 90-day period; is that correct?

Mr. KNIGHT. That I would have to check the lease for.

Mr. BROOKS. All right. Let's get it right.

You might also see, while checking that, Mr. Knight, if the tax valuations on that property was something in the neighborhood of $85,000 until January 1 of this year when it was increased to something like $185,000.

Mr. KNIGHT. I don't believe we would have that in the record. I don't believe we would.

Mr. BROOKS. While you are doing that we will go on.

Mr. KNIGHT. I have the answer I believe. This says 75 days prior to the end of the term hereof.

Mr. BROOKS. The Government?

Mr. KNIGHT. The Third Recon would have the right to purchase it if it is exercised not less than 75 days prior to the end of the term of this lease, with Third Recon and Foremost Food Chemical Co.

Mr. BROOKS. They have about a 15-day spread in there; 90 days to the Government and 75 to them.

Mr. KNIGHT. It would be.

Mr. BROOKS. Do you think, Mr. Jay, that they will have much difficulty in financing the purchase price when the Government notifies them of its intention to renew?

Mr. Jay. I, sir, think this is really a tough question to answer because I know no more what the loan picture is going to be 3 years from now than anything. I have no idea. This is a gamble they are taking, that they can do this. I don't know. They may have terms to purchase this building from Foremost on fairly easy terms. I don't

know.

Mr. BROOKS. If they were supposed to pay for it in cash, on the basis of a reasonable assumption today, wouldn't it be that, with a 3year Government lease starting in 3 years, you could finance approximately a $275,000 payment without unreasonable difficulty; wouldn't you think?

Mr. JAY. I think it would be difficult, sir, on a 3-year lease, is my honest opinion.

Mr. KNIGHT. May I say something, Mr. Chairman?

Mr. BROOKS. Mr. Knight.

Mr. KNIGHT. In that connection, the Government's interest seems to be adequately protected because we do have an agreement with Foremost Food & Chemical Co. to pick it up in the event that they don't exercise the option.

Mr. BROOKS. You have an agreement to do what?

Mr. KNIGHT. Foremost Food & Chemical Co. has agreed in writing to pick this up, to underwrite, in other words, in the event Third Recon defaults.

Mr. BROOKS. Which would protect the Government?

Mr. KNIGHT. Yes, sir; as far as the Government's interest is concerned.

Mr. BROOKS. When did they make that agreement with the Government?