B-74262, MARCH 23, 1948, 27 COMP. GEN. 543

B-74262: Mar 23, 1948

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THERE IS NO AUTHORITY FOR THE EXECUTION OF A LEASE OF A CIVILIAN HOUSING AREA AT AN OVERSEAS NAVAL BASE TO PRIVATE INTERESTS AT A NOMINAL ANNUAL RENTAL. 1948: I HAVE A LETTER DATED MARCH 8. WHICH IS TO INCLUDE DORMITORIES FOR SINGLE PERSONS. IT IS STATED IN THE SAID LETTER THAT PRIOR ENDEAVORS OF THE NAVY DEPARTMENT TO PROVIDE FOR THE OPERATION OF CAFETERIAS AND THE FURNISHING OF OTHER ESSENTIAL SERVICES. - HAVE PROVED UNSUCCESSFUL. IT IS STATED THAT. CERTAIN COMPANIES OF VARYING EXPERIENCE AND STANDING HAVE SUBMITTED RECOMMENDATIONS AND PROPOSALS AS FOLLOWS: ONE OF THESE IS FOR AN OPERATING AGREEMENT UNDER WHICH THE COMPANY WILL FURNISH THE SERVICES AT NAVY-CONTROLLED PRICES. THE SECOND PROPOSAL IS FOR AN NCPI AGREEMENT BETWEEN AN EMPLOYEES' BOARD AND A CONCESSIONAIRE FOR THE FURNISHING OF SUBSISTENCE AND HOUSING AT BOARD-CONTROLLED PRICES.

B-74262, MARCH 23, 1948, 27 COMP. GEN. 543

LEASES - PUBLIC PROPERTY - MONEY CONSIDERATION AND RENTAL DEPOSITING REQUIREMENTS OF ECONOMY ACT IN VIEW OF THE PROVISIONS OF SECTION 321 OF THE ECONOMY ACT OF 1932, REQUIRING THAT THE LEASING OF PUBLIC PROPERTY BE FOR A MONEY CONSIDERATION, AND THAT THE RENTALS THEREFROM BE DEPOSITED AS MISCELLANEOUS RECEIPTS, THERE IS NO AUTHORITY FOR THE EXECUTION OF A LEASE OF A CIVILIAN HOUSING AREA AT AN OVERSEAS NAVAL BASE TO PRIVATE INTERESTS AT A NOMINAL ANNUAL RENTAL--- WITHOUT ANY ASSURANCE OF MONETARY PROFIT TO THE GOVERNMENT--- IN CONSIDERATION FOR THE LESSEE'S FURNISHING HOUSING AND RELATED SERVICES TO NAVAL PERSONNEL WITH A RIGHT TO USE THE GROSS RECEIPTS FOR THE OPERATION AND MAINTENANCE THEREOF.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE NAVY, MARCH 23, 1948:

I HAVE A LETTER DATED MARCH 8, 1948, FROM THE ACTING UNDER SECRETARY OF THE NAVY, RELATIVE TO THE OPERATION OF A CIVILIAN HOUSING AREA CURRENTLY BEING CONSTRUCTED ON THE ISLAND OF GUAM, TO BE KNOWN AS CAMP AS AN, WHICH IS TO INCLUDE DORMITORIES FOR SINGLE PERSONS, ROOMS FOR MARRIED COUPLES, HOTEL ROOMS FOR TRANSIENT PERSONNEL AND CIVILIANS, A GALLEY, STOREROOM, MESS HALL, RECREATION HALL, AND AN ADMINISTRATION BUILDING WITH BARBER SHOP, BEAUTY SHOP, SNACK BAR, AND SALES STORE.

IT IS STATED IN THE SAID LETTER THAT PRIOR ENDEAVORS OF THE NAVY DEPARTMENT TO PROVIDE FOR THE OPERATION OF CAFETERIAS AND THE FURNISHING OF OTHER ESSENTIAL SERVICES, EXCEPT HOUSING, THROUGH ARRANGEMENTS MADE BY AN EMPLOYEES' BOARD--- WHICH GENERALLY CONTRACTS WITH A CONCESSIONAIRE TO FURNISH THE SERVICES OR WHICH SUPERVISE THE FURNISHING OF THE SERVICES IN ITS OWN NAME--- HAVE PROVED UNSUCCESSFUL, RESULTING IN A GROWING DISSATISFACTION AMONG THE CIVILIAN WORKERS SO AS TO MAKE IT DIFFICULT TO INDUCE RENEWALS AND EXTENSIONS OF EMPLOYMENT AGREEMENTS AND IN RECRUITING PERSONNEL REPLACEMENTS. ALSO, IT IS STATED THAT, AFTER OBSERVING THE FACILITIES AND CONDITIONS AT GUAM, CERTAIN COMPANIES OF VARYING EXPERIENCE AND STANDING HAVE SUBMITTED RECOMMENDATIONS AND PROPOSALS AS FOLLOWS:

ONE OF THESE IS FOR AN OPERATING AGREEMENT UNDER WHICH THE COMPANY WILL FURNISH THE SERVICES AT NAVY-CONTROLLED PRICES, COLLECT THE CHARGES FROM THE WORKERS AND APPLY THESE TOWARD REIMBURSEMENT OF ITS EXPENSES AND PAYMENT OF ITS OWN FIXED MONTHLY FEE, THE BALANCES, IF ANY, TO BE PAID OVER TO THE GOVERNMENT, AND THE DEFICIT, IF ANY, TO BE MADE UP BY THE GOVERNMENT.

THE SECOND PROPOSAL IS FOR AN NCPI AGREEMENT BETWEEN AN EMPLOYEES' BOARD AND A CONCESSIONAIRE FOR THE FURNISHING OF SUBSISTENCE AND HOUSING AT BOARD-CONTROLLED PRICES. APART FROM THE PRIMARY OBJECTION THAT AN EMPLOYEES' BOARD OPERATION IS DEEMED INEXPEDIENT AND UNRELIABLE IN THE LIGHT OF PAST EXPERIENCE, SUCH A PROPOSAL RAISES THE QUESTION WHETHER THE NCPI ARRANGEMENTS MAY BE EXTENDED TO INCLUDE HOUSING WITHOUT REQUIRING THE PAYMENT OF RENT FOR QUARTERS TO THE GOVERNMENT.

THE THIRD AND FOURTH PROPOSALS INVOLVE OFFERS BY THE COMPANIES TO LEASE CAMP AS AN UNDER CONDITIONS WHICH WILL REQUIRE THE LESSEE TO USE THE FACILITIES ONLY TO FURNISH HOUSING AND SUBSISTENCE AND RELATED SERVICES AT NAVY-CONTROLLED STANDARDS, COSTS AND PRICES WHICH WILL BE REGULATED FROM TIME TO TIME WITH A VIEW OF ASSURING THE LESSEE SUFFICIENT RECEIPTS TO COVER HIS SERVICE COSTS AND A FIXED PERCENTAGE PROFIT. IT WOULD APPEAR THAT UNDER SUCH A LEASE THE GROSS RECEIPTS FROM SERVICES WOULD BE FUNDS OF THE LESSEE AVAILABLE FOR PAYMENT OF ITS COSTS AND PROFIT AND ANY QUESTION OF DEPOSITING THE GROSS PROCEEDS IN MISCELLANEOUS RECEIPTS WOULD NOT ARISE. ACCORDINGLY THE LEASE ARRANGEMENT WOULD APPEAR BOTH LEGALLY AND PRACTICALLY APPROPRIATE.

HOWEVER, NONE OF THE COMPANIES OFFER MORE THAN A NOMINAL RENT AT THE BEGINNING, AND THERE ARE NO PROSPECTS OF PROCURING HIGHER OFFERS FROM OTHERS. THE VENTURE IS HIGHLY SPECULATIVE AT BEST, AND THE COMPANIES ARE UNDERSTANDABLY ANXIOUS TO KEEP THEIR OPERATING COSTS AND LIABILITIES DOWN TO A MINIMUM, AT LEAST FOR AN INITIAL TRIAL DURING WHICH THE PRESENTLY NEBULOUS FACTORS OF RECEIPTS, COSTS AND PROFITS WILL BE CRYSTALLIZED BY EXPERIENCE. IN A TRUE SENSE, THEREFORE, THE HIGHEST RENT AVAILABLE FOR THE FACILITIES UNDER THE ACTUAL CONDITIONS OF USE IS MERELY NOMINAL. THE REAL RETURN TO THE GOVERNMENT WILL COME FROM THE WELL-BEING, CONTENTMENT AND STABILITY OF ITS EMPLOYEES. A FURTHER FAILURE IN AFFORDING DECENT LIVING ACCOMMODATIONS, A MARKED INCREASE IN THE COST OF LIVING, OR A SUBSTANTIAL IMPAIRMENT OF THEIR HOPES OF RETURNING TO THE UNITED STATES WITH SIZEABLE SAVINGS WILL SERIOUSLY JEOPARDIZE THE PROGRAM OF RECRUITMENT AND RETENTION OF WORKERS ESSENTIAL TO THE ACCOMPLISHMENT OF THE NAVY'S MISSION AT GUAM.

UNDER THE CIRCUMSTANCES, IT IS DEEMED IN THE BEST INTEREST OF THE GOVERNMENT TO PROVIDE IN THE LEASE FOR A RENT OF $1 A YEAR, PLUS ALL PROFITS OVER AND ABOVE THE PERCENTAGE PROFIT ALLOWED TO THE LESSEE FOR HIS SERVICES. SUCH RENT WILL NOT BE A DISCOURAGING BURDEN UPON THE LESSEE, AND AT THE SAME TIME WILL AVOID THE POSSIBILITY OF THE LESSEE MAKING UNCONTROLLED PROFITS FROM THE GOVERNMENT FACILITIES WITHOUT RETURNING A FAIR RENT TO THE GOVERNMENT. * * *

THERE WAS TRANSMITTED WITH SAID LETTER A DRAFT OF A PROPOSED LEASE EMBODYING THE PLAN DESCRIBED IN PROPOSALS THREE AND FOUR, SET FORTH ABOVE, AND A DECISION REQUESTED AS TO WHETHER THIS OFFICE WOULD BE REQUIRED TO OBJECT TO SUCH A LEASE ON LEGAL GROUNDS.

WHILE THE SUBMISSION DOES NOT INDICATE THE AUTHORITY UNDER WHICH THE CIVILIAN HOUSING AREA AT GUAM CURRENTLY IS BEING CONSTRUCTED, IT IS ASSUMED FOR THE PURPOSES OF THIS DECISION THAT SUCH GOVERNMENT-OWNED FACILITIES ARE BEING CONSTRUCTED WITH FUNDS DERIVED FROM AN APPROPRIATION OR APPROPRIATIONS CONTEMPLATING THE CONSTRUCTION OF RENTAL HOUSING. HOWEVER THAT MAY BE, IT DOES NOT APPEAR THAT THE NAVY DEPARTMENT HAS AUTHORITY TO RENT THE PROJECT AS A WHOLE TO PRIVATE INTERESTS, AS PROPOSED, IN CONSIDERATION FOR THE LESSEE'S FURNISHING HOUSING AND RELATED SERVICES TO NAVAL PERSONNEL WITH THE RIGHT TO USE THE GROSS RECEIPTS FOR THE OPERATION AND MAINTENANCE THEREOF.

ALTHOUGH THE AFORESAID LETTER STATES THAT THE PROPOSED LEASE ARRANGEMENT WOULD APPEAR TO BE LEGALLY APPROPRIATE, NO REFERENCE IS MADE TO THE STATUTORY OR OTHER AUTHORITY THEREFOR. ON THE CONTRARY, AS THE DRAFT OF THE PROPOSED LEASE REQUIRES NO PAYMENT--- OTHER THAN A NOMINAL ANNUAL RENTAL OF ONE DOLLAR--- TO BE MADE TO THE GOVERNMENT EXCEPT PROFITS OVER AND ABOVE THE PERCENTAGE PROFIT ALLOWED TO THE LESSEE FOR HIS SERVICES, AND AS THERE IS LITTLE OR NO ASSURANCE THAT THE LESSEE WILL REALIZE ANY PROFIT FROM OPERATION OF THE PROJECT OVER AND ABOVE THE PERCENTAGE TO BE PAID TO HIM, SUCH A LEAVE WOULD APPEAR TO BE PROHIBITED BY SECTION 321 OF THE ACT OF JUNE 30, 1932, 47 STAT. 412, WHICH PROVIDES AS FOLLOWS:

HEREAFTER, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY LAW, THE LEASING OF BUILDINGS AND PROPERTIES OF THE UNITED STATES SHALL BE FOR A MONEY CONSIDERATION ONLY, AND THERE SHALL NOT BE INCLUDED IN THE LEASE ANY PROVISION FOR THE ALTERATION, REPAIR, OR IMPROVEMENT OF SUCH BUILDINGS OR PROPERTIES AS A PART OF THE CONSIDERATION FOR THE RENTAL TO BE PAID FOR THE USE AND OCCUPATION OF THE SAME. THE MONEYS DERIVED FROM SUCH RENTALS SHALL BE DEPOSITED AND COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS. IN OTHER WORDS, THE AMOUNTS RECEIVED AS RENT FROM THE OCCUPANTS OF THE DORMITORIES AND ROOMS WOULD NOT BE COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, AS REQUIRED BY THE ABOVE QUOTED PROVISION OF LAW, BUT WOULD BE RETAINED BY THE LESSEE OF THE PROJECT AS A PART OF THE GROSS PROCEEDS FROM ITS OPERATION.

ALSO, ATTENTION IS INVITED TO OFFICE DECISION OF JULY 10, 1945, 25 COMP. GEN. 25, IN WHICH IT WAS HELD AS FOLLOWS (QUOTING FROM SYLLABUS):

IN VIEW OF THE GENERAL PROVISIONS OF SECTIONS 3617 AND 3618, REVISED STATUTES, AND OF THE PROVISIONS OF SECTION 119 OF THE NAVAL APPROPRIATION ACT, 1945, WHICH HAVE THE EFFECT OF CONSOLIDATING ALL FUNDS ALLOCATED TO THE NAVY DEPARTMENT UNDER CERTAIN ACTS FOR TEMPORARY AND LOW-COST DEFENSE HOUSING PROJECTS AND OF REQUIRING THAT ALL RECEIPTS DERIVED FROM THE RENTAL OR OPERATION OF SUCH PROJECTS BE DEPOSITED AS MISCELLANEOUS RECEIPTS, ALL SUCH RECEIPTS, INCLUDING THOSE DERIVED FROM PROJECTS CONSTRUCTED WITH FUNDS APPROPRIATED DIRECTLY TO THE NAVY DEPARTMENT, MUST BE COVERED INTO THE TREASURY AS MISCELLANEOUS RECEIPTS, WITHOUT DEDUCTION FOR OPERATION AND MAINTENANCE EXPENSES.

ACCORDINGLY, I AM CONSTRAINED TO THE VIEW THAT THERE IS NO LEGAL AUTHORITY FOR THE EXECUTION OF A LEASE SUCH AS PROPOSED OR FOR THE ALTERNATE PROPOSAL--- SUGGESTED IN THE SUBMISSION--- OF EXECUTING A LEASE PROVIDING FOR THE PAYMENT BY THE LESSEE OF A FIXED PERCENTAGE OF THE GROSS PROCEEDS, INCLUDING RENTAL FROM HOUSING, TO THE GOVERNMENT AS RENT.