oversight

Federal Real Property: Improved Cost Reporting Would Help Decision Makers Weigh the Benefits of Enhanced Use Leasing

Published by the Government Accountability Office on 2012-12-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States Government Accountability Office

GAO             Report to the Chairman, Subcommittee on
                Federal Financial Management, Government
                Information, Federal Services, and International
                Security, Committee on Homeland Security and
                Governmental Affairs, U.S. Senate

                FEDERAL REAL
December 2012



                PROPERTY

                Improved Cost
                Reporting Would Help
                Decision Makers
                Weigh the Benefits of
                Enhanced Use Leasing




GAO-13-14
                                                December 2012

                                                FEDERAL REAL PROPERTY
                                                Improved Cost Reporting Would Help Decision
                                                Makers Weigh the Benefits of Enhanced Use Leasing

Highlights of GAO-13-14, a report to the
Chairman, Subcommittee on Federal Financial
Management, Government Information,
Federal Services, and International Security,
Committee on Homeland Security and
Governmental Affairs, U.S. Senate

Why GAO Did This Study                          What GAO Found
The federal government owns                     Agency officials told us that enhanced use leases (EUL) help them utilize their
underutilized properties that are costly        underutilized property better; commonly cited benefits include enhanced mission
to operate, yet challenges exist to             activities, cash rent revenue, and value received through in-kind consideration.
closing and disposing of them. To               However, some agencies we reviewed do not include all costs associated with
obtain value from these properties,             their EULs when they assess the performance of their EUL programs. Guidance
some agencies have used EULs,                   from the Office of Management and Budget (OMB) does not specify what costs
which are generally long-term                   agencies should include in their EUL evaluations, resulting in variance among
agreements to lease property from the           agencies. For example, the Department of Veterans Affairs (VA) and the
federal government in exchange for              Department of State do not consistently attribute EUL-related costs of consultant
cash or non-cash consideration.                 staff who administer the leases, and VA does not attribute various administrative
However, agencies also incur costs for          costs that offset EUL benefits. Without fully accounting for all EUL costs,
EUL programs. We have previously                agencies may overstate the net benefits of their EUL programs.
reported that agencies should include
all costs associated with programs’             Based on recent agency experiences, EULs may be a viable option for
activities when assessing their values.         redeveloping underutilized federal real property when disposal is not possible or
This report addresses (1) the extent to         desirable, but two agencies raised issues pertaining to EUL use that affect their
which agencies attribute the full               use or budgetary treatment. First, National Aeronautics and Space Administration
benefits and costs of their EULs in their       (NASA) officials said that the limit on its authority to receive in-kind consideration
assessments of their EUL programs               as part of its EUL program has limited its ability to encourage the use of EULs for
and (2) the experiences of agencies in          underutilized NASA property. Specifically, NASA officials said prospective
using their EUL authority.                      lessees are reluctant to make costly capital improvements to a property that will
GAO reviewed property data and                  have to be returned to the government at the end of the lease without other
documents from the largest civilian             compensation, such as a reduction in cash rent. Second, VA and CBO disagree
federal real property agencies                  on the extent to which VA should account for the budget impacts for EULs that
including four agencies that use                could include long-term government commitments. VA has made multi-year
EULs—VA, NASA, the Department of                commitments with certain EULs without fully reporting them in its budget.
State, and the Department of                    Assessing and recognizing the budget impacts of EULs is complicated and may
Agriculture—and applicable laws, and            be interpreted differently by agencies with EUL authority. In particular, VA EULs
regulations and guidance. GAO visited           can include long-term commitments that are recognized in the federal budget in
nine sites where agencies were using            different ways.
EULs.

What GAO Recommends
To promote transparency about EULs,
improve decision-making regarding
EULs and ensure more accurate
accounting of EUL benefits, GAO
recommends that OMB coordinate with
affected agencies to ensure that
agencies consistently attribute all
relevant costs associated with EULs to
their EUL programs. Agencies
generally agreed with our findings and
recommendation.

View GAO-13-14. For more information,
contact David Wise at (202) 512-2834 or
wised@gao.gov.

                                                                                          United States Government Accountability Office
Contents


Letter                                                                                    1
               Background                                                                  3
               Agencies Attributed Benefits of EULs to Their EUL Programs, but
                 Did Not Always Do the Same with All Costs                                 6
               Agencies’ Experiences in Using EULs Provide Illustrative
                 Examples about EUL Use                                                  16
               Conclusions                                                               20
               Recommendation                                                            20
               Agency Comments                                                           21

Appendix I     Objectives, Scope, and Methodology                                        22



Appendix II    16 Case Study Enhanced Use Leases by Location, Property
               Type, and Tenant Use                                                      25



Appendix III   Comments from Veterans Affairs                                            26



Appendix IV    GAO Contact and Staff Acknowledgments                                     30



Tables
               Table 1: General Description of EULs at Selected Agencies                   5
               Table 2: Agencies’ Reported Cash Rent Revenue from EULs, Fiscal
                        Year 2011                                                         9
               Table 3: VA EUL Leaseback Costs in Fiscal Year 2011                       19
               Table 4: EULs by Agency                                                   25


Figures
               Figure 1: Department of State EUL for the Hôtel de Talleyrand in
                        Paris, France                                                      8
               Figure 2: Department of State’s EUL for a Condominium
                        Development in Singapore                                         10




               Page i                                         GAO-13-14 Federal Real Property
Figure 3: Housing Facility Located on Property that VA Leases to
         the Vancouver Housing Authority in Vancouver,
         Washington                                                                       12




Abbreviations

CBO               Congressional Budget Office
Energy            Department of Energy
EUL               enhanced use lease
FRPP              Federal Real Property Profile
GSA               General Services Administration
Interior          Department of Interior
Justice           Department of Justice
NASA              National Aeronautics and Space Administration
OMB               Office of Management and Budget
SLSDC             St. Lawrence Seaway Development Corporation
State             Department of State
TVA               Tennessee Valley Authority
USDA              Department of Agriculture
USPS              United States Postal Service
VA                Department of Veterans Affairs


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Page ii                                                   GAO-13-14 Federal Real Property
United States Government Accountability Office
Washington, DC 20548




                                   December 19, 2012

                                   The Honorable Thomas R. Carper
                                   Chairman
                                   Subcommittee on Federal Financial Management, Government
                                    Information, Federal Services, and International Security
                                   Committee on Homeland Security and Governmental Affairs
                                   United States Senate

                                   Dear Mr. Chairman:

                                   The federal government owns many underutilized properties that are
                                   costly to operate. However, closing or disposing of them can present
                                   challenges, including covering the costs associated with federal real
                                   property disposal, addressing legal requirements agencies must adhere
                                   to, such as requirements for screening and environmental cleanup, and
                                   negotiating competing stakeholder interests that can arise over the
                                   disposal of property. We have designated federal real property
                                   management as a high-risk area, in part because of the presence of
                                   underutilized properties. 1 As an alternative to increased agency use or
                                   disposal, some agencies initiated enhanced use lease (EUL) programs.
                                   EULs are typically long-term lease agreements that allow public or private
                                   entities to use the property. 2 Agency EUL programs have allowed entities
                                   to develop or occupy federal properties such as power plants, housing
                                   and healthcare facilities, office space, and parking facilities, and in return,
                                   federal agencies receive cash or in-kind consideration. 3 However,
                                   agencies also incur costs for EUL programs. We have previously reported
                                   that in any assessment of the cost/benefit of an agency’s activities, all
                                   program costs should generally be included and any excluded costs
                                   should be disclosed and explained. 4 In 2011, we raised concerns about


                                   1
                                    GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 2011).
                                   2
                                    There is no government-wide definition of EULs. This definition was drawn from GAO,
                                   Federal Real Property: Authorities and Actions Regarding Enhanced Use Leases and
                                   Sale of Unneeded Real Property, GAO-09-283R (Washington, D.C.: Feb. 17, 2009).
                                   3
                                     In-kind consideration refers to goods or services that a lessee provides to an agency in
                                   lieu of cash rent payments.
                                   4
                                    GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and
                                   Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009).




                                   Page 1                                                     GAO-13-14 Federal Real Property
how the Department of Defense monitored the costs of its EUL program. 5
To help inform the discussion surrounding agencies’ recent use of EULs
to manage their federal real property portfolio, you asked us to examine
issues related to these leases. Specifically, we addressed the following
research questions:

1. To what extent do agencies attribute the full benefits and costs of their
   EULs in their assessments of their EUL programs?
2. What have been the experiences of agencies using their EUL
   authority?
To answer these questions, we reviewed prior GAO reports on enhanced-
use leasing and capital financing 6 and identified agencies as candidates
for a detailed review of EUL use. 7 To identify candidate agencies, we
used Federal Real Property Profile data; the General Services
Administration’s (GSA) 2008 document Real Property Authorities for
Federal Agencies; a prior GAO report on enhanced use leasing; 8 and
interviews with officials at the four agencies that indicated they use
EULs—the the Department of Veterans Affairs (VA), the National
Aeronautics and Space Administration (NASA), the Department of State
(State), and the Department of Agriculture (USDA). We reviewed relevant
documentation related to these agencies’ enhanced use leasing,
including laws providing agencies with EUL authority, and agencies’ EUL
guidance. We also interviewed agency officials involved with developing
and managing EULs. We chose a sample of 16 EULs from among the
four agencies to review as case studies. We selected this sample to
represent a variety of (1) lease purposes (e.g., leasing vacant land for
development and leasing unused office space); (2) estimated financial
benefits (e.g., cash benefits and in-kind consideration); and (3)
geographic locations. We conducted site visits at nine of the 16 case



5
 GAO, Defense Infrastructure: The Enhanced Use Lease Program Requires Management
Attention, GAO-11-574, (Washington, D.C.: June 30, 2011).
6
 GAO, GAO-11-574; GAO, NASA: Enhanced Use Leasing Program Needs Additional
Controls, GAO-07-306R (Washington, D.C.: Mar. 1, 2007); and GAO, Capital Financing:
Partnerships and Energy Savings Performance Contracts Raise Budgeting and Monitoring
Concerns, GAO-05-55 (Washington, D.C.: Dec., 16, 2004).
7
 We excluded the Department of Defense (DOD) because GAO recently issued a report
on DOD’s EUL program, see GAO-11-574.
8
GAO-09-283R.




Page 2                                                GAO-13-14 Federal Real Property
             study locations to observe the properties. 9 These site visits included
             NASA’s Ames Research Center in Moffett Field, California; VA sites in
             Maryland, New Jersey, and Washington; and a USDA agricultural
             research center in Beltsville, Maryland. We interviewed agency officials
             and lessees about their experiences with EULs at these locations. In
             addition, we interviewed State officials about that department’s EULs for
             properties located in Istanbul, Turkey; Paris, France; and Singapore. See
             appendix II for a list of case studies and descriptions of the properties and
             lessee uses. We reviewed the agreements between VA and its lessees
             and the past work of the Congressional Budget Office (CBO) and the
             VA’s Office of Inspector General on VA’s EULs in Chicago, Illinois; North
             Chicago, Illinois; and Mountain Home, Tennessee. We conducted
             interviews with officials from the Office of Management and Budget
             (OMB), CBO, and GSA to better understand government-wide views,
             guidance, and practices concerning EULs. See appendix I for more
             detailed information on our scope and methodology.

             We conducted this performance audit from October 2011 to December
             2012 in accordance with generally accepted government auditing
             standards. Those standards require that we plan and perform the audit to
             obtain sufficient, appropriate evidence to provide a reasonable basis for
             our findings and conclusions based on our audit objectives. We believe
             that the evidence obtained provides a reasonable basis for our findings
             and conclusions based on our audit objectives.


             EULs are typically long-term leases of federal land or buildings to public
Background   sector or private sector companies. Some agencies with EUL authority
             are authorized to accept in-kind consideration, such as improvements to
             agency properties or construction of new facilities in place of cash rent.
             There is no government-wide definition of an enhanced use lease and
             agencies’ EUL authorities and guidance vary, as these examples
             illustrate:

             •   VA was authorized to enter into EULs for up to 75 years with public
                 and private entities for leases that contributed to VA’s mission and


             9
              Because this is a nonprobability sample, observations made based on our review of the
             16 case study locations do not support generalizations about other EUL sites. Rather, the
             observations made provided specific, detailed examples of issues that were described by
             agency officials and lessees.




             Page 3                                                   GAO-13-14 Federal Real Property
      would enhance the use of the property for cash or in-kind
      consideration; however, this authority expired on December 31, 2011.
      Prior to the expiration of VA’s EUL authority, VA entered into 92 EULs
      that remain active. In August 2012, VA’s EUL authority was
      reauthorized through December 2023, but the current authority allows
      VA to enter into EULs up to 75 years only for the provision of
      supportive housing for veterans or their families that are at risk of
      homelessness or are homeless. VA may accept cash consideration,
      or it may enter into an EUL without receiving consideration, and it is
      prohibited from entering into leasebacks. 10 VA may not enter into an
      EUL without advanced written certification from OMB that the lease
      complies with the statutory requirements. 11 VA reports annually on the
      details, benefits, and costs of its EUL program. The annual report
      states that it gives a transparent view of the measureable outcomes of
      the cost-effective benefits to veterans that the EUL program provides.

•     NASA is authorized to enter into EULs of agency properties for cash
      consideration or, if the EULs involve the development of renewable
      energy production facilities, in-kind consideration. 12 NASA may not
      enter into leasebacks. 13 NASA policy requires that EULs relate to and
      support the agency’s mission of research, education, and exploration.
      The agency’s longest EUL term is 95 years. 14 NASA’s EUL authority
      expires in December 2017. NASA reports annually to Congress on its
      EUL program’s status, proceeds, expenditures, and effectiveness.

•     State is authorized to enter into EULs for its properties acquired in
      foreign countries for diplomatic and consular establishments. 15 State’s
      longest EUL term is 99 years and expires in 2090. According to State
      officials, the agency does not have a formal EUL program. It has only


10
  A leaseback is an arrangement in which an agency leases an asset to another entity,
then leases back services or property from the lessee. For example, an agency may lease
a warehouse facility to the private sector and then rent back some space for its own use.
11
    38 U.S.C. § 8162.
12
    51 U.S.C. § 20145(b).
13
    51 U.S.C. § 20145(e)(1).
14
  According to NASA officials, the total potential term of this lease is 95 years, comprised
of a 5-year initial term, a primary term of 60 years, and lessee’s right to three unilateral
extensions of 10 years each.
15
    22 U.S.C. § 300.




Page 4                                                      GAO-13-14 Federal Real Property
                                                utilized EULs in three instances. State uses EULs on a case by case
                                                basis when directed by Congress to retain properties or when it does
                                                not consider disposal a desirable option due to the strategic or historic
                                                value of an asset. For example, State was required to retain the
                                                Palazzo Corpi building in Istanbul, Turkey. 16 State carries the EULs in
                                                its property inventory and monitors the transactions and the cash
                                                flows but does not report externally on its EUL program.

                                          •     USDA is authorized to demonstrate whether enhanced use leasing of
                                                agency real property at its Beltsville Agricultural Research Center and
                                                the National Agricultural Library for cash consideration will enhance
                                                the use of the leased property. 17 The authority requires that EULs be
                                                consistent with the USDA’s mission and have terms no longer than 30
                                                years. USDA’s EUL authority expires in June 2013. USDA reported to
                                                Congress on the management and performance measures associated
                                                with its EUL demonstration program and is required to report on the
                                                success of the program upon completion in 2013.

                                          Table 1 shows how the four agencies we reviewed used EULs.

Table 1: General Description of EULs at Selected Agencies

Agency                General description of EULs
VA                    EULs are located on VA sites throughout the nation and vary from individual buildings on VA campuses to
                      entire VA campuses.
NASA                  EULs are currently only located at the Ames Research Center in California and the Kennedy Space Center in
                      Florida, and are used for leasing space in existing buildings and leasing land for construction of buildings.
                      The majority of NASA’s EULs are located at the Ames Research Center in California.
State                 EULs are for former U.S. diplomatic sites in France, Singapore, and Turkey.
USDA                  Single EUL is limited to greenhouse space at a facility in Beltsville, Maryland.
                                          Source: GAO analysis of agency data.


                                          OMB coordinates and provides guidance on federal real property
                                          management government-wide in its role as Chair of the Federal Real
                                          Property Council, which is composed of federal real property-holding
                                          agencies. For example, OMB Circular A-11 provides general guidance on
                                          evaluating the performance of federal programs and on the budgetary
                                          treatment of federal leases, including EULs and leaseback


                                          16
                                              Pub. L. No. 108-199, § 633(e) (Jan. 23, 2004).
                                          17
                                              7 U.S.C. § 3125a note.




                                          Page 5                                                         GAO-13-14 Federal Real Property
                         arrangements. 18 OMB’s guidance does not provide specific information
                         about the treatment of EULs, but does require EULs with leasebacks
                         above certain threshold amounts be submitted to OMB for their
                         budgetary-scoring impact. OMB’s instructions also outline how budget
                         authority for the cost of leasing an asset is to be recorded in the budget,
                         depending on how risk is shared between the government and the lessee,
                         for three types of leases: operating leases, capital leases, and lease
                         purchases. 19



Agencies Attributed
Benefits of EULs to
Their EUL Programs,
but Did Not Always
Do the Same with All
Costs

Agencies Cited Various   Agency officials told us that EULs provide a variety of benefits to the
EUL Benefits             government in addition to better utilization of underutilized federal
                         property. The commonly cited benefits include enhanced mission
                         activities, cash rent revenue, and value received through in-kind
                         consideration.



                         18
                           OMB, Circular A-11 Preparation, Submission, and Execution of the Budget (August
                         2012).
                         19
                           Operating leases are defined in OMB Circular No. A-11 as meeting the following criteria:
                         (1) Ownership of the asset remains with the lessor during the term of the lease and is not
                         transferred to the government at or shortly after the end of the lease term; (2) the lease
                         does not contain a bargain-price purchase option; (3) the lease term does not exceed 75
                         percent of the estimated economic life of the asset; (4) the present value of the minimum
                         lease payments over the life of the lease does not exceed 90 percent of the fair market
                         value of the asset at the beginning of the lease term; (5) the asset is a general-purpose
                         asset rather than being for a special purpose of the government and is not built to the
                         unique specification of the government as lessee; and (6) there is a private sector market
                         for the asset. A capital lease is any lease other than a lease-purchase that does not meet
                         the criteria of an operating lease. Lease-purchase means a type of lease in which
                         ownership of the asset is transferred to the government at or shortly after the end of the
                         lease term. Such a lease may or may not contain a bargain-price purchase option.




                         Page 6                                                    GAO-13-14 Federal Real Property
Enhanced Mission Activities   Officials from the four agencies we reviewed said that EULs contribute to
                              their ability to conduct mission-related activities; for example:

                              •   VA officials said that EULs provide the agency mission-related
                                  benefits such as veterans’ priority placement for housing. For
                                  example, according to VA, its EUL with Vancouver Housing Authority
                                  in Washington to develop a previously vacant site at a VA medical
                                  center campus supports the agency’s strategic goals of (a) eliminating
                                  homelessness among veterans by providing housing and (b) reducing
                                  its inventory of vacant and underutilized capital assets.

                              •   NASA officials said that EULs provide the agency mission-related
                                  benefits, such as research and development of aerospace
                                  technologies. For example, according to a NASA official, NASA’s EUL
                                  with a company that researches and develops battery systems for
                                  electric vehicles advances the agency’s mission of developing new
                                  power and propulsion systems for vehicles used in space launches.

                              •   State officials said that EULs provide mission-related benefits by
                                  allowing the department to maintain properties symbolic of U.S.
                                  history and diplomacy. For example, State declared the historically
                                  significant Talleyrand building in Paris excess (see fig. 1) but chose
                                  not to dispose of it because the building had served as the
                                  administrative headquarters for the Marshall Plan, the postwar
                                  American reconstruction plan for Western Europe. According to State
                                  Department officials, State’s EUL lessee supports the agency’s
                                  mission by maintaining the building and retaining space inside of it for
                                  the George C. Marshall Center including a permanent exhibit
                                  commemorating the Marshall Plan.




                              Page 7                                           GAO-13-14 Federal Real Property
                    Figure 1: Department of State EUL for the Hôtel de Talleyrand in Paris, France




                    •    USDA officials said that the agency’s EUL program allows it to better
                         utilize property while also collaborating with researchers on mission-
                         related goals. For example, USDA officials told us that its EUL of
                         greenhouse space at its Beltsville Agricultural Research Center has
                         allowed the agency to advance its mission of developing more
                         efficient crops because the lessee conducts research at the EUL site
                         directly linked to this goal. According to USDA officials, each EUL
                         lessee is required to have a formal collaborative research agreement
                         with the agency.

Cash Rent Revenue   All four agencies we reviewed reported cash benefits from EULs.
                    Individual EULs can generate millions of dollars for the federal
                    government, but most EULs generate small amounts of cash revenue.
                    For example, the average VA EUL generated about $25,000 in cash
                    revenue in fiscal year 2011. 20 See table 2 for the total cash rent revenue
                    the four agencies in our review received in fiscal year 2011.



                    20
                      While most of VA’s EULs did not generate cash revenue in fiscal year 2011, among the
                    17 of 53 VA EULs that generated cash revenue, the average was about $79,000 per EUL.




                    Page 8                                                 GAO-13-14 Federal Real Property
Table 2: Agencies’ Reported Cash Rent Revenue from EULs, Fiscal Year 2011

    Agency                             Total cash rent revenue                 Number of EULs
    NASA                                           $8.0 million                               71
    State                                          $1.8 million                                3
    VA                                             $1.3 million                               53
                                                              a
    USDA                                             $15,569                                   1
Source: GAO analysis of agency data.
a
Rental income commenced May 20, 2011.


The following represents examples of the cash rent revenue that
agencies received as part of EULs:

•        NASA’s most lucrative EUL is its lease for land on which its lessee
         plans to build office and research and development space for its
         employees. NASA receives about $3.66 million per year from this
         lessee. Over the 40-year lease, NASA expects to receive
         approximately $147.7 million in cash revenue.

•        At one of its EULs, State received an up-front, one-time cash lump
         sum of $46 million and receives nominal annual cash rent payments
         for the 99-year EUL of its former chief of mission residence and land
         in Singapore. 21 The lessee, a developer, constructed condominiums
         on the land (see fig. 2). Over the course of its 51-year lease for its
         Istanbul embassy property, State will receive approximately $20.6
         million in cash revenue.




21
  According to State officials, the agency receives an annual nominal rent payment of
$1,000 Singapore dollars (or about $760 U.S. dollars), a payment that is a common
practice for long-term, prepaid leases.




Page 9                                                            GAO-13-14 Federal Real Property
                        Figure 2: Department of State’s EUL for a Condominium Development in Singapore




                        •   VA received cash rental income of $340,000 in calendar year 2011 for
                            its Somerville, New Jersey, EUL. The lessee renovated the
                            warehouse and rented it to tenants.

                        •   USDA received cash rental income of $15,569 in fiscal year 2011 for
                            greenhouse space at its Beltsville Agricultural Research Center. The
                            lessee uses the facility to research genetically modified plants.

In-Kind Consideration   VA, State, and NASA have also reported in-kind consideration as benefits
                        of EULs. Specifically, VA estimated that it received in-kind consideration
                        worth about $232 million from fiscal years 2006 through 2010. NASA
                        estimated that it received in-kind consideration worth about $987,000
                        from fiscal years 2007 through 2011. State estimated that it received
                        about $46 million in in-kind consideration from fiscal years 2008 through
                        2010. The specifics of in-kind arrangements with EUL lessees and the
                        benefits claimed by agencies vary, for example:

                        •   VA received priority placement for veterans in a housing facility built
                            by the Vancouver Housing Authority as in-kind consideration in lieu of
                            cash rent for its EUL in Vancouver, WA. VA officials said that this
                            priority placement allowed VA to move patients from the hospital to
                            transitional housing earlier, thus freeing up beds for other patients and
                            reducing costs. (See fig. 3.) VA estimated the value of this priority
                            placement at $2,866,327 in fiscal year 2011. At a different EUL site in


                        Page 10                                           GAO-13-14 Federal Real Property
     Vancouver, WA, the Clark County government leased VA-owned land
     and constructed a four story community-health building on it.
     According to VA officials, in lieu of paying cash rent for the land, Clark
     County provided VA with approximately 23,000 square feet of free
     office space in the new building as in-kind consideration in fiscal year
     2011. VA also received priority placement for veterans for all
     programs and services offered in the community-health building as in-
     kind consideration. VA estimated the total value of its in-kind
     consideration at $7,225,879 in fiscal year 2011. However, in 2012, the
     VA OIG found that VA often overstated the value of in-kind
     consideration in its annual report on the performance of its EUL
     program. 22 According to VA officials, VA is recalculating and updating
     its EUL methodology used to report expenses and benefits. VA
     officials stated that, as required by law, the revised EUL lease
     consideration calculations will be reported in VA’s fiscal year 2014
     budget that the agency plans to release in February 2013. 23




22
 VA Office of Inspector General, Department of Veterans Affairs, Audit of the Enhanced-
Use Lease Program (Feb. 19, 2012).
23
  Each year as part of the annual budget submission of the President to Congress, the VA
Secretary is required to submit a detailed report of the consideration received for each
enhanced use lease, along with an overview of how VA is using such consideration to
support veterans. See 38 U.S.C. § 8168(b).




Page 11                                                 GAO-13-14 Federal Real Property
Figure 3: Housing Facility Located on Property that VA Leases to the Vancouver
Housing Authority in Vancouver, Washington




•    A NASA EUL lessee at the Ames Research Center made
     improvements, such as investments in fire protection and electrical
     systems, to the facility the lessee rents as in-kind consideration in lieu
     of some of a cash-rent requirement to NASA. NASA estimated the
     total value of this in-kind consideration to be $586,044 from 2004
     through 2009. One of NASA’s EULs includes a provision for in-kind
     consideration of about $1 million if the lessee built a new water tower,
     park, and security gate under certain time frames. 24




24
  According to NASA, the lessee did not complete the projects by the required deadlines
and therefore had to repay NASA the cash value of in-kind consideration already provided
to the agency (approximately $890,000); however, per the terms of the EUL, the lessee is
still required to construct the infrastructure, share it with the agency, and convey it to the
government upon completion of the infrastructure improvements.




Page 12                                                     GAO-13-14 Federal Real Property
                              •    State’s EUL with a lessee for the Talleyrand building in Paris also
                                   included in-kind consideration. In exchange for reduced cash rent of
                                   $46 million, the lessee renovated the entire building including space to
                                   house the Department of State’s George C. Marshall Center.


Some Agencies Do Not          Some of the agencies we reviewed do not include all costs associated
Attribute All Costs of EULs   with their EULs when they assess the performance of their EUL
to Their EUL Programs in      programs. Federal agencies are required to assess and report the full
                              costs of their activities to provide relevant and reliable cost information to
a Consistent, Appropriate     assist the Congress and federal executives in making decisions about
Manner                        allocating federal resources, assessing costs and benefits to compare
                              alternative courses of action, authorizing and modifying programs, and
                              evaluating program performance. 25 However, OMB Circular A-11
                              guidance is broad and does not specify what costs agencies should
                              attribute to their EUL programs, resulting in variance among agencies.
                              Without fully accounting for all EUL costs, agencies may overstate the net
                              benefits of their EUL programs. Specifically, we noted variances in
                              whether agencies attributed consultant costs, termination costs, and
                              leaseback costs to their overall EUL program costs.

Consultant Costs              NASA and USDA attribute consultant costs to their EUL programs, but VA
                              and State do not. Agencies use consultants to provide subject matter
                              expertise and technical support for their EULs, such as conducting real
                              estate appraisals, market analyses, engineering studies, and general
                              consulting services.

                              •    According to NASA officials, the agency spent about $2 million on
                                   consultants to support its EUL program from fiscal years 2006 to
                                   2011. Agency officials added that these costs are attributed to NASA’s
                                   total EUL program costs in NASA’s annual budget reports to provide a
                                   fully transparent accounting of the net benefits of the program.

                              •    According to USDA officials, the agency incurred one consultant fee
                                   as part of its EUL program—a $10,250 market appraisal to determine
                                   rental rates for properties selected for the program. USDA officials
                                   said that the agency attributed the consultant costs to its EUL



                              25
                                Federal Accounting Standards Advisory Board, Statement of Federal Financial
                              Accounting Standards 4: Managerial Cost Accounting Standards and Concepts,
                              Pronouncements as Amended, Version 7 (June 2008).




                              Page 13                                                GAO-13-14 Federal Real Property
                                program and plans to include all costs, including consultant costs, in
                                its final report at the conclusion of the agency’s EUL demonstration
                                program.

                           •    According to VA officials, consultants are generally realty specialists
                                who provide support throughout the various stages of executing an
                                EUL agreement. In addition to supplying real estate expertise, EUL
                                consultants may facilitate obtaining various reports that are generated
                                as part of VA’s due diligence on EUL projects. Such reports can
                                include environmental site assessments, property appraisals, surveys
                                of EUL parcels, title searches, and various other documentation
                                required by law. In fiscal years 2006 to 2011, the agency awarded
                                approximately $28 million to consultants related specifically to the
                                formulation or support of the agency’s EULs. We reviewed VA’s
                                consultant costs related to its EUL program and found that VA had not
                                attributed any consultant costs to the EUL program.

                           •    State’s consultant fees for developing, implementing, and overseeing
                                its EULs in Paris and Istanbul were approximately $723,000 from
                                fiscal years 2006 to 2011. State was unable to verify expenses for
                                developing and implementing its EUL in Singapore because of the
                                age of the project. 26 State does not attribute the costs of consultant
                                fees to its EUL program costs. State officials said that they do not
                                have any consultants with sole EUL responsibility and they consider
                                consultant fees to be under the category of administrative costs. State
                                officials noted that the amount of consultant fees specifically related to
                                EULs is a negligible part of the agency’s overall consultant fees
                                because EULs represent a very small portion of State’s 20,000
                                properties worldwide.

Cost of Terminating EULs   VA and NASA have incurred costs related to terminating EULs that they
                           did not attribute to their EUL programs. Costs that result from terminating
                           EULs prior to the end of the term are important considerations for
                           decision makers when determining if EULs are viable and beneficial to
                           the agency. VA has terminated seven EULs since 1991. According to VA,
                           in most cases, the agency terminated the lease because either the lessee
                           did not fulfill the terms and conditions of the lease or the lease was
                           mutually terminated. Most recently, VA terminated an EUL, and according



                           26
                             State officials said because the Singapore EUL was awarded in 1991, they no longer
                           had information on expenses.




                           Page 14                                                 GAO-13-14 Federal Real Property
                  to VA officials, the cost as of fiscal year 2011 associated with terminating
                  this lease was $287,000 for ongoing litigation. We reviewed VA’s
                  termination costs and found that VA had not attributed termination costs
                  to its EUL program. VA officials said that they do not attribute costs
                  associated with termination to its total EUL program costs because it
                  attributes these costs at a higher budgetary level.

                  According to NASA, the Ames Research Center has terminated 11 EULs
                  since 2003, which NASA officials told us were mostly short duration
                  leases for office space and included three EULs that were terminated for
                  the purpose of consolidating them into one new lease with the same
                  lessee. NASA officials said that some termination costs, such as time
                  spent calculating a lessee’s penalty for terminating a lease, are not
                  attributed to EUL program costs. NASA officials told us that these costs
                  have been minimal and cannot be tracked to either EULs or activities
                  related to terminating leases and are instead considered general
                  administrative costs.

Leaseback Costs   Among the four agencies we reviewed, only VA currently leases back
                  space or services from its EUL lessees. In fiscal year 2011, VA leased
                  back some or all of its space at seven of its EUL sites at a cost of about
                  $15.8 million. For example, VA received $340,000 in rent for its EUL in
                  Somerville, New Jersey, but at the same time paid approximately
                  $181,000 to lease back part of the facility. 27 According to VA, the agency
                  received the use of one loading bay rent free as in-kind consideration and
                  paid approximately $15,000 for utilities, operations, and maintenance
                  related to that bay. Two years later, VA requested a second bay in the
                  facility for which, according to VA, it paid approximately $166,000 in rent.
                  The agency did not consider any of the leaseback costs as arising as part
                  of the EUL transaction and instead claimed the entire $340,000 in rental
                  income as the cash benefit of the EUL.

                  The appropriate treatment of leaseback costs in determining the net
                  benefit of an EUL is an area that may require further clarification in OMB
                  guidance. It is unclear, for example, whether leaseback costs associated
                  with VA’s leaseback arrangements should be taken into account in
                  determining the net benefit of the EUL’s rental income. On the one hand,



                  27
                    VA received the $340,000 payment for calendar year 2011 and paid for the warehouse
                  space it used for fiscal year 2011.




                  Page 15                                                GAO-13-14 Federal Real Property
                         the $181,000 paid for the leaseback as described above could be viewed
                         as an effective reduction in the lease payment from the lessee. On the
                         other hand, in the absence of the EUL, it is possible that VA would have
                         expended funds to obtain these warehousing facilities in some other way.
                         It may thus not represent net additional cost to VA and it may not be
                         appropriate to view the leaseback as having effectively reduced the rental
                         income of the EUL.


                         Based on recent agency experiences, EULs may be a viable option for
Agencies’                redeveloping underutilized federal real property when disposal is not
Experiences in Using     possible or desirable, but agencies raised issues pertaining to EULs that
                         affect their use or budgetary treatment. First, NASA has reported that the
EULs Provide             limitation on its authority to accept in-kind consideration has limited its
Illustrative Examples    ability to encourage use of EULs and investments in underutilized NASA
                         property. Second, recognizing potential budget impacts associated with
about EUL Use            EUL leasebacks and other long-term commitments has proved
                         challenging for VA. Although the results of our review cannot be
                         generalized to all agencies, these challenges provide illustrative
                         examples of the types of issues that can affect a federal agency’s
                         decision or ability to use EULs.


In-Kind Consideration    According to NASA officials, in-kind consideration is critical for
                         encouraging lessees to invest in agency properties. NASA’s ability to
                         accept in-kind consideration expired at the end of 2008; it was restored
                         on a limited basis in 2011 exclusively for renewable energy projects.
                         NASA officials said that this limitation in the agency’s ability to accept in-
                         kind consideration has hindered its ability to enter into EULs that could
                         improve the property. In particular, according to the NASA officials,
                         prospective lessees are reluctant to make capital improvements that will
                         have to be conveyed to the government at the end of the lease without
                         receiving other compensation, such as a reduction in cash rent. For
                         example, a lessee, as previously discussed, agreed to invest $11 million
                         in infrastructure projects that would benefit the company during the lease
                         but benefit the government during and after the lease in return for a
                         reduction in the lessee’s cash rent payments. Representatives from
                         NASA and the lessee told us that this provision was critical to
                         successfully negotiating the EUL.


Budget Impacts of EULs   VA officials said that assessing and recognizing the budget impacts of
                         EULs is complicated and maybe interpreted differently by agencies with


                         Page 16                                           GAO-13-14 Federal Real Property
EUL authority. In particular, VA EULs can include long-term commitments
that are recognized in the federal budget in different ways. OMB’s
Circular No. A-11 guidance specifies that lease obligations be recorded
when the contract is signed; sufficient budget authority must be available
at that time to cover the obligation. However, the obligated amount that is
to be recorded differs by type of lease. For capital leases and lease
purchases, OMB Circular A-11 states that the amount obligated should
equal the net present value of these lease payments over the full term of
the lease. For operating leases, OMB Circular A-11 states that agencies
should record an amount equal to the total payments under the full term
of the lease or the first year’s lease payments plus cancellation costs. 28
VA views EUL leasebacks as operating leases and consequently does
not obligate the total amount of these commitments upfront in its budget.
VA’s leaseback costs are nearly $16 million annually (see table 3), but VA
and CBO disagree on the extent to which VA should account for the
budget impacts for EULs that could include long-term government
commitments. For example, VA’s leaseback costs for its Chicago West
Side EUL were about $3.5 million in fiscal year 2011. VA regards its
underlying office and parking purchase agreements as 2-year operating
leases, as opposed to capital leases or lease purchases. VA officials said
that the department is properly treating the office and parking purchase
agreements as operating leases, because VA can cancel the office and
parking leasebacks at the end of each 2-year agreement. However, in a
2003 report to Congress on the budgetary treatment of leases, CBO
found that VA used this enhanced use lease to obtain a $60 million
regional headquarters building and parking facility. The CBO report stated
that VA entered into a 35-year enhanced use lease for a four-acre site
with an owner trust, with VA as the sole named beneficiary. VA
subsequently leased back space in the building and the parking facility
that the lessee constructed on the site.

The CBO report also stated that:

•   VA’s lease payments played a crucial role in allowing the lessee to
    borrow funds. VA is committed to a two-year lease of 95 percent of



28
   For prior GAO reports on the budgetary treatment of federal leases; see, for example,
GAO-05-55; GAO, Budget Issues: Alternative Approaches to Finance Federal Capital,
GAO-03-1011 (Washington, D.C.: Aug. 21, 2003); and GAO, Federal Real Property: NIH
Has Improved Its Leasing Process, but Needs to Provide Congress with Information on
Some Leases, GAO-06-918 (Washington, D.C.: Sept. 8, 2006).




Page 17                                                  GAO-13-14 Federal Real Property
       the space in the building and 95 percent of the parking facility; almost
       all of the lessee’s revenue will initially come from VA.

•      The initial two-year lease is automatically renewed unless the VA
       takes specific steps at the end of the lease period to halt it. In
       addition, as long as VA chooses to occupy any portion of the facility it
       must make payments that are sufficient to cover amortization and
       interest on the lessee’s debt.

•      VA also has the right to purchase the building from the lessee at any
       time for a price that would cover payments on the lessee’s debt.

•      Thus, VA has a long-term commitment to cover the lessee’s capital
       costs even if it reduces its occupancy in the building, and this,
       together with an implicit right to renew the lease, would appear to
       make the arrangement either a lease-purchase or, if the trust is not
       viewed as a separate entity from VA, a government purchase
       financed by federal borrowing.

As such, CBO concluded in its report that the intent of the West Side EUL
project was to provide VA with capital assets (an office building and
parking facilities for VA staff) without recording the cost of the purchase
upfront in the budget. 29 In general, we have also consistently stated that
the full costs of the government’s commitments should be reflected
upfront in the budget. 30 In commenting on a draft of this report, VA
officials said the agency made changes in subsequent EULs to address
and in their view eliminate CBO’s early concerns related to EULs with
leasebacks.




29
 Congressional Budget Office, The Budgetary Treatment of Leases and Public/Private
Ventures, (Washington, D.C.: February 2003) at 33-34 and 45.
30
     See GAO-05-55, GAO-03-1011, and GAO-06-918.




Page 18                                               GAO-13-14 Federal Real Property
Table 3: VA EUL Leaseback Costs in Fiscal Year 2011

                                                                                                                        VA leaseback costs,
EUL location                      Type of EUL project                                                                        fiscal year 2011
                                                                                                                                                 a
Leavenworth, KS                   Residential health care                                                                              $14,989
Milwaukee, WI                     Office space for VA regional staff                                                                 $2,448,713
Somerville, NJ                    Mixed use warehouse                                                                                  $181,391
Salt Lake City I, UT              Office space for VA regional and field staff                                                       $2,142,451
Salt Lake City II, UT             Office space for VA regional and field staff                                                       $2,626,209
Chicago (West Side), IL           Office space for VA regional staff                                                                 $3,502,894
Atlanta, GA                       Office space for VA regional staff                                                                 $4,910,903
Total                                                                                                                              $15,827,550
                                        Source: GAO analysis of VA data.
                                        a
                                         According to VA, the building was not operational until April 2011, therefore this is not a full year
                                        payment.


                                        VA also has energy project EULs at Chicago West Side, Illinois; North
                                        Chicago, Illinois; and Mountain Home, Tennessee, which have a similar
                                        legal structure as the Chicago West Side agreement for the regional
                                        headquarters building. VA officials stated that they disagree with CBO’s
                                        conclusions about the budget impacts of these EULs. VA entered into 35-
                                        year EULs for land with owner trusts as part of the energy project EULs.
                                        In return the lessee agrees to build power plants to service on-site VA
                                        facilities. VA purchases power from the plants at a fixed price, 31 in lieu of
                                        GSA energy utility contracts, for stipulated two-year terms, subject to
                                        certain anticipated renewal provisions. VA is committed to purchase
                                        power from the lessee at fixed prices as long as the VA center remained
                                        open and even if VA reduced its level of purchases, VA would continue to
                                        cover the lessee’s capital costs. These purchase agreements with VA
                                        provided enough security to allow the lessees to obtain private loans to
                                        construct the power plants. VA officials said that VA did not report the
                                        total 35-year commitment for these EULs in its budget because of its
                                        determination that the cost to provide energy services to VA medical
                                        centers is not a new expenditure and without the EUL—VA would still
                                        need to procure services to power medical centers. In addition, VA
                                        officials said that they believe that accounting for all 35 years of costs
                                        upfront in the budget would not be technically appropriate, since VA


                                        31
                                          For both Chicago EULs, if the established rates for power are at least 25 percent higher
                                        than available market rates, the rates will be renegotiated.




                                        Page 19                                                              GAO-13-14 Federal Real Property
                 would be determining in advance that it would prospectively receive
                 energy under the purchase agreements for 35 year periods without
                 recognizing VA’s two-year renewal options. However, CBO reported that
                 VA’s commitment to pay the lessees annual amounts sufficient to service
                 the private debt on the power plants—regardless of whether VA uses the
                 power produced—as constituting a legally binding obligation of the federal
                 government that should be recorded in full upfront in the budget. 32


                 Agencies have shown that EULs have the potential to produce mission-
Conclusions      related and financial benefits for otherwise underutilized federal real
                 property, but the costs and benefits of these programs are not fully
                 understood, given different agency practices in accounting for EUL costs.
                 Some EULs bring in large amounts of cash rent, such as the State
                 Department’s $20.6 million Istanbul EUL and NASA’s $147.7 million EUL,
                 but most EULs have much more modest benefits to the government
                 where the costs could more easily outweigh the benefits. For example,
                 the average VA EUL earned about $25,000 in cash revenue last year—
                 financial benefits that could be outweighed by consultant, termination,
                 and leaseback costs, which agencies have not consistently attributed to
                 their EUL programs. Lacking clear guidance and failing to incorporate all
                 of the costs related to agencies’ EUL programs could cause agencies to
                 overstate the net benefits of these programs when reporting the
                 performance of their EUL programs or making decisions about future
                 EULs.


                 To promote transparency about EULs, improve decision-making
Recommendation   regarding EULs, and ensure more accurate accounting of EUL net
                 benefits, we recommend that OMB work with VA, NASA, State, and
                 USDA, and any other agencies with EUL authority, to ensure that
                 agencies consistently attribute all costs associated with EULs (such as
                 consulting, termination, and leaseback costs) to their EUL programs, as
                 appropriate.




                 32
                  See Congressional Budget Office, The Budgetary Treatment of Leases and
                 Public/Private Venture (Washington, D.C.: February 2003).




                 Page 20                                              GAO-13-14 Federal Real Property
                  We provided a draft of this report to the Deputy Director for Management
Agency Comments   of OMB and the Secretaries of Veterans Affairs, State, and Agriculture
                  and the Administrator of NASA for review and comment. In commenting
                  on a draft of this report, OMB generally agreed with GAO’s observations
                  and recommendation. OMB emphasized that Circular No. A-11 provides
                  guidance on budget scoring and is not intended to address the costs and
                  benefits of EULs. We amended our recommendation to reflect that there
                  are a variety of ways to ensure that the costs of EULs are consistently
                  tracked and reported. Veterans Affairs, State, Agriculture, and NASA
                  generally agreed with our conclusions and the agencies provided
                  technical comments, which we incorporated as appropriate. See appendix
                  III for VA’s comments along with our responses to the technical
                  comments.


                  As agreed with your office, unless you publicly announce the contents of
                  this report earlier, we plan no further distribution until 30 days from the
                  report date. At that time, we will send copies to the Deputy Director for
                  Management of OMB and the Secretaries of Veterans Affairs, State, and
                  Agriculture, and the Administrator of NASA. Additional copies will be sent
                  to interested congressional committees. In addition, the report will be
                  available at no charge on the GAO website at http://www.gao.gov.

                  If you have any questions about this report, please contact me at (202)
                  512-2834 or wised@gao.gov. Contact points for our Offices of
                  Congressional Relations and Public Affairs maybe found on the last page
                  of this report. Major contributors to this report are listed in appendix IV.

                  Sincerely yours,




                  David J. Wise
                  Director
                  Physical Infrastructure Issues




                  Page 21                                          GAO-13-14 Federal Real Property
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              Our objectives were to determine:

              (1) To what extent do agencies attribute the full benefits and costs of their
              EULs in their assessments of their EUL programs?

              (2) What have been the experiences of agencies in using their EUL
              authority?

              To address these both of these objectives we reviewed prior GAO reports
              on enhanced use leasing and capital financing, 1 and contacted the Office
              of Management and Budget (OMB), Congressional Budget Office (CBO)
              and 11 agencies: (1) Veterans Affairs (VA), (2) National Aeronautics and
              Space Administration (NASA), (3) Department of State (State), (4)
              Department of Agriculture (USDA), (5) General Services Administration
              (GSA), (6) Department of Energy (Energy), (7) Department of Interior
              (Interior), (8) Department of Justice (DOJ), (9) United States Postal
              Service (USPS), (10) St. Lawrence Seaway Development Corporation
              (SLSDC), and (11) Tennessee Valley Authority (TVA) based on size or
              evidence of EUL authority. 2 We identified the 11 agencies based on our
              review of property data and documents from: (1) The 7 largest civilian real
              property holding agencies, by total square footage, as of fiscal year 2010,
              as listed in the Federal Real Property Profile, 3 (2) GSA’s Real Property
              Authorities for Federal Agencies (2008), (3) Agencies’ Authorities
              Regarding EULs and Real Property Sales from GAO-09-283R, and (4)
              interviews with officials from agencies identified in the above 3 sources to
              determine if they used EULs and if they knew of any other agencies that
              used EULs. Using information from the 11 agencies we contacted, we


              1
               GAO, Defense Infrastructure: The Enhanced Use Lease Program Requires Management
              Attention, GAO-11-574, (Washington, D.C.: June 30, 2011); GAO, Federal Real Property:
              Authorities and Actions Regarding Enhanced Use Leases and Sale of Unneeded Real
              Property, GAO-09-283R (Washington, D.C.: Feb. 17, 2009); GAO, NASA: Enhanced Use
              Leasing Program Needs Additional Controls, GAO-07-306R (Washington, D.C.: Mar. 1,
              2007); and GAO, Capital Financing: Partnerships and Energy Savings Performance
              Contracts Raise Budgeting and Monitoring Concerns, GAO-05-55, (Washington, D.C.:
              December 16, 2004).
              2
               We excluded the Department of Defense (DOD) because GAO recently issued a report
              on DOD’s EUL program, see GAO-11-574.
              3
               We reported on problems with the FRPP data in GAO, Federal Real Property: National
              Strategy and Better Data Needed to Improve Management of Excess and Underutilized
              Property, GAO-12-645, (Washington, D.C. June 20, 2012), but determined that it was
              suitable for purposes of this report.




              Page 22                                                GAO-13-14 Federal Real Property
Appendix I: Objectives, Scope, and
Methodology




selected the 4 agencies (VA, NASA, State and USDA) that have used
their EUL authority to enter into EULs. 4 We selected 16 case study EULs
from the four agencies that have EULs based on a range of lease
purposes (e.g., leasing of vacant land for development and leasing
unused office space); estimated financial benefits (e.g., cash benefits and
in-kind consideration); and varying geographic locations. The case
studies were located in Chicago, IL; North Chicago, IL; Mountain Home,
TN; Vancouver, WA; Somerville, NJ; Moffett Field, CA; Beltsville, MD;
Fort Howard, MD; Paris, France; Istanbul, Turkey, and Singapore.
Because the 16 case studies were selected based on a non-probability
sample, observations made based on our review of the 16 case study
locations do not support generalizations about other EUL sites. Rather,
the observations made provided specific, detailed examples of issues that
were described by agency officials and lessees. We also interviewed
agency officials at the local level and headquarters locations, and
reviewed relevant laws describing agencies’ EUL authorities and agency
documentation, including agencies’ regulations and guidance on
enhanced use leasing. We visited the 9 case studies located in the U.S.
to observe the properties firsthand, interviewed agency officials and
lessees about their experience with EULs at these locations, and
reviewed documentation regarding these properties. The case study
EULs were located at NASA’s Ames Research Center in Moffett Field,
California, VA sites in Maryland, New Jersey and Washington state, and a
USDA agricultural research center in Beltsville, Maryland. For the three
State case studies we did not visit, we interviewed headquarters officials
and reviewed relevant documentation including site-visit reports. For the
four VA sites we did not visit in Chicago, Illinois, Chicago (West Side),
Illinois; North Chicago, Illinois; and Mountain Home, Tennessee, we
reviewed the agreements between VA and its lessees and the past work
of the Congressional Budget Office and the VA’s Office of Inspector
General. We also interviewed OMB, CBO, and GSA officials to better
understand government-wide views, guidance, and practices on
enhanced use leasing.




4
 We excluded several of these agencies because they did not have EULs or EUL
authority (Interior, Justice, and the St. Lawrence Seaway Development Corporation). GSA
has EUL authority, but has not awarded EULs. Further, USPS and Tennessee Valley
Authority officials told us that they do not consider their leases or leasebacks, respectively,
as EULs. We also excluded DOD because we recently issued a report on its EUL
program, GAO-11-574.




Page 23                                                      GAO-13-14 Federal Real Property
Appendix I: Objectives, Scope, and
Methodology




We conducted this performance audit from October 2011 to December
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




Page 24                                        GAO-13-14 Federal Real Property
Appendix II: 16 Case Study Enhanced Use
                                      Appendix II: 16 Case Study Enhanced Use
                                      Leases by Location, Property Type, and Tenant
                                      Use


Leases by Location, Property Type, and
Tenant Use
                                      As shown in table 3, we reviewed 16 case study EULs. We reviewed 8
                                      VA EULs, 4 from NASA, 3 from State, and 1 from USDA.

Table 4: EULs by Agency

Agency      Location                  Agency property                        EUL tenant use of property
VA          Somerville, NJ            Warehouse                              Renovate warehouse
            Vancouver, WA             Vacant land                            Construct health care facility
            Vancouver, WA             Vacant land                            Construct housing
            Fort Howard, MD           Vacant land and buildings              Construct housing
            Chicago, IL (West Side)   Vacant land                            Construct office space and parking facility
            Chicago, IL               Vacant land                            Construct energy center
            Mountain Home, TN         Vacant land                            Construct co-generation plant
            North Chicago, IL         Vacant land                            Construct energy center
NASA        Moffett Field, CA         Animal research facility               Animal husbandry and research
            Moffett Field, CA         Warehouse                              Electric vehicle research
            Moffett Field, CA         Vacant land                            Construct multi-story office buildings and research
                                                                             and development space
            Moffett Field, CA         Hangar                                 Storage of satellite equipment
State       Istanbul, Turkey          Historic embassy compound              Restore and convert buildings, construct hotel
            Paris, France             Historically significant building      Restore building and lease office space
            Singapore                 Embassy property                       Build condominiums
USDA        Beltsville, MD            Greenhouse                             Plant-based research
                                      Source: GAO analysis of agency data.




                                      Page 25                                                    GAO-13-14 Federal Real Property
Appendix III: Comments from the
                              Appendix III: Comments from the Department
                              of Veterans Affairs



Department of Veterans Affairs

Note: GAO comments
supplementing those in
the report’s text appear at
the end of this appendix.




                              Page 26                                      GAO-13-14 Federal Real Property
                  Appendix III: Comments from the Department
                  of Veterans Affairs




See comment. 1.




Now on p. 11.
See comment 2.




Now on p. 14.
See comment 3.




Now on p. 15.
See comment 4.




                  Page 27                                      GAO-13-14 Federal Real Property
                 Appendix III: Comments from the Department
                 of Veterans Affairs




Now on p. 15.
See comment 5.




                 Page 28                                      GAO-13-14 Federal Real Property
               Appendix III: Comments from the Department
               of Veterans Affairs




               The following are GAO’s comments on the U.S. Department of Veterans
               Affairs (VA) letter dated November 29, 2012.


               1. VA suggested changing this paragraph related to its energy programs.
GAO Comments      We edited the paragraph to align with the related text in the body of
                  the report to which we added context on the different types of EULs
                  that can include long-term government commitments, including those
                  types described in VA’s comment.
               2. We made the changes suggested by VA.
               3. VA indicated that it already reports its consultant costs associated
                  with its EULs as part of its overall management costs. We continue to
                  believe that VA should report all EUL costs as part of its EUL program
                  specifically, including consultant costs.
               4. VA indicated that it attributed termination costs to its overall
                  program—but not its EUL program. We continue to believe that VA
                  should report all EUL costs as part of its EUL program, including
                  termination costs.
               5. VA indicated that its leaseback of the second bay at Somerville was
                  not identified at the time of lease execution, but this contention is not
                  supported by the lease agreements.




               Page 29                                           GAO-13-14 Federal Real Property
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  David J. Wise at (202) 512-2834 or at wised@gao.gov
GAO Contact
                  In addition to the contact named above, Keith Cunningham, Assistant
Staff             Director; Amy Abramowitz; Melissa Bodeau; Carol Henn; Hannah Laufe;
Acknowledgments   James Leonard; Sara Ann Moessbauer; Lisa G. Shibata; and Crystal
                  Wesco made key contributions to his report.




(542196)
                  Page 30                                     GAO-13-14 Federal Real Property
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