Federal Real Property:

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

GAO-13-14: Published: Dec 19, 2012. Publicly Released: Jan 18, 2013.

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What GAO Found

Agency officials told us that enhanced use leases (EUL) help them utilize their underutilized property better; commonly cited benefits include enhanced mission activities, cash rent revenue, and value received through in-kind consideration. However, some agencies we reviewed do not include all costs associated with their EULs when they assess the performance of their EUL programs. Guidance from the Office of Management and Budget (OMB) does not specify what costs agencies should include in their EUL evaluations, resulting in variance among agencies. For example, the Department of Veterans Affairs (VA) and the Department of State do not consistently attribute EUL-related costs of consultant staff who administer the leases, and VA does not attribute various administrative costs that offset EUL benefits. Without fully accounting for all EUL costs, agencies may overstate the net benefits of their EUL programs.

Based on recent agency experiences, EULs may be a viable option for redeveloping underutilized federal real property when disposal is not possible or desirable, but two agencies raised issues pertaining to EUL use that affect their use or budgetary treatment. First, National Aeronautics and Space Administration (NASA) officials said that the limit on its authority to receive in-kind consideration as part of its EUL program has limited its ability to encourage the use of EULs for underutilized NASA property. Specifically, NASA officials said prospective lessees are reluctant to make costly capital improvements to a property that will have to be returned to the government at the end of the lease without other compensation, such as a reduction in cash rent. Second, 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. VA has made multi-year commitments with certain EULs without fully reporting them in its budget. Assessing and recognizing the budget impacts of EULs is complicated and may be interpreted differently by agencies with EUL authority. In particular, VA EULs can include long-term commitments that are recognized in the federal budget in different ways.

Why GAO Did This Study

The federal government owns underutilized properties that are costly to operate, yet challenges exist to closing and disposing of them. To obtain value from these properties, some agencies have used EULs, which are generally long-term agreements to lease property from the federal government in exchange for cash or non-cash consideration. However, agencies also incur costs for EUL programs. We have previously reported that agencies should include all costs associated with programs’ activities when assessing their values. This report addresses (1) the extent to which agencies attribute the full benefits and costs of their EULs in their assessments of their EUL programs and (2) the experiences of agencies in using their EUL authority.

GAO reviewed property data and documents from the largest civilian including four agencies that use federal real property agencies EULs—VA, NASA, the Department of State, and the Department of Agriculture—and applicable laws, and regulations and guidance. GAO visited nine sites where agencies were using 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.

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

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: The federal government owns underutilized properties that are costly to operate, yet challenges exist to closing and disposing of them. To obtain value from these properties, some agencies have used Enhanced Use Leases (EULs), which are generally long-term agreements to lease property from the federal government in exchange for payment such as cash rent. However, agencies also incur costs for 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. In 2012, GAO reported that according to agency officials, EULs help them utilize their underutilized property better; commonly cited benefits include enhanced mission activities, cash rent revenue, and value received through in-kind consideration. However, some agencies GAO reviewed do not include all costs associated with their EULs when they assess the performance of their EUL programs. Guidance from the Office of Management and Budget (OMB) does not specify what costs agencies should include in their EUL evaluations, resulting in variance among agencies. Without fully accounting for all EUL costs, agencies may overstate the net benefits of their EUL programs when reporting the performance of these programs or making decisions about future EULs. Therefore, GAO recommended that OMB work with agencies with EUL authority to ensure that agencies consistently attribute all costs associated with EULs to their EUL programs, as appropriate, to ensure more accurate accounting of EUL net benefits. In June 2017, GAO confirmed that OMB and GSA worked to improve estimates of the benefits from enhanced use leases. As GAO recommended, OMB reviewed how it could consistently attribute all relevant costs associated with enhanced use leases. OMB considered different strategies for capturing the costs of real property action, including requiring agencies to track and report the costs and estimating the costs using industry benchmarks. OMB found that none of these strategies were likely to result in reliable cost data because agencies use a variety of financial and procurement systems with a range of cost expenditure tracking and reporting capabilities. Consistent categorization and quantification of cost expenditure data is not available among the agencies to support a defensible, repeatable cost estimating methodology using modeling or actual costs. GAO believes that OMB's actions addressed the intent of GAO's recommendation, which was to increase reporting consistency and acknowledge that there are costs associated with EUL actions. As a result, OMB acknowledges the data limitations in estimating the benefits of enhanced use leases, which enhances the transparency associated with EULs.

    Recommendation: To promote transparency about EULs, improve decision-making regarding EULs, and ensure more accurate accounting of EUL net benefits, OMB should 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.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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