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March 1, 2007: 

The Honorable Daniel K. Inouye: 
Chairman: 
The Honorable Ted Stevens: 
Co-Chairman: 
Committee on Commerce, Science, and Transportation: 
United States Senate: 

The Honorable Bart Gordon: 
Chairman: 
The Honorable Ralph M. Hall: 
Ranking Member: 
Committee on Science and Technology: 
House of Representatives: 

Subject: NASA: Enhanced Use Leasing Program Needs Additional Controls: 

In 2003, the National Aeronautics and Space Administration (NASA) was 
authorized to demonstrate enhanced use leasing (EUL) at two centers, 
allowing the agency to retain the proceeds from leasing out 
underutilized real property and to accept in-kind consideration in lieu 
of cash for rent. NASA selected Ames Research Center and Kennedy Space 
Center for the demonstration program. The agency had requested that 
Congress extend this authority to additional NASA centers during 
formulation of the NASA Authorization Act of 2005. 

NASA's request was not granted. Instead, Section 710 of the NASA 
Authorization Act of 2005 (Public Law 109-155) directed GAO to review 
NASA's EUL program. We examined (1) the financial impact of the EUL 
authority on NASA and whether EUL revenue and other financial benefits 
would have been realized without the authority, (2) NASA's use of the 
authority and whether the arrangements made under the authority would 
have been made in the absence of the authority, and (3) what controls 
are in place to ensure accountability and transparency and to protect 
the government. The act also directed GAO to report back to the 
Congress by December 30, 2006. 

We presented our preliminary findings to your staff in December 2006. 
Because of your committees' interest in how NASA is implementing its 
EUL authority, we are enclosing the full briefing that supported that 
December presentation with this report (see encl. II), along with a 
summary of our findings and conclusions. To ensure that NASA's EUL 
program is transparent and protects the interests of the government, we 
are recommending that before considering further expansion of the 
program, NASA develop an agency wide EUL policy, based upon sound 
business practices and lessons learned from the demonstration centers, 
that establishes minimum standards for controls and processes, such as 
best economic value criteria, measures of effectiveness, and specific 
accounting controls. In written comments, NASA concurred with our 
recommendation and stated that the agency has begun taking the steps 
necessary to develop an agency wide EUL policy and to adopt mechanisms 
to keep the Congress fully informed of its activities under EUL 
authority (see encl. I). 

Background: 

Because of long-standing problems with excess and underutilized 
property, deteriorating assets, unreliable real property data, and 
costly facilities challenges, GAO designated federal real property as a 
high-risk area in January 2003. We have reported that many federal real 
property assets--including facilities and land worth hundreds of 
billions of dollars--are in an alarming state of deterioration, and 
agencies have estimated restoration and repair needs to be in the tens 
of billions of dollars.[Footnote 1] 

Like many federal agencies, NASA faces considerable challenges 
addressing facilities needs with limited funds. As the ninth largest 
federal government property holder, NASA owns more than 100,000 acres 
of real estate, as well as over 3,000 buildings and 3,000 other 
structures totaling over 44 million square feet. However, the agency 
has large and growing capital repair needs. NASA's property database 
shows over $1.8 billion of deferred maintenance for the agency's 
facilities. In addition, over 10 percent of the agency's facilities are 
underutilized or not utilized at all. According to NASA's 2004 Real 
Property Management Plan, critical attention to maintenance and 
recapitalization is required to ensure NASA's ability to safely and 
effectively achieve its vision and mission. 

We have reported that in an era of limited resources and growing 
mission needs, many agencies have turned to approaches other than full 
up-front appropriated funding to finance real property acquisitions and 
improvements.[Footnote 2] EUL authority--which allows agencies to 
accept cash and/or in-kind consideration for real property leases and 
to retain the proceeds--is one of these alternative approaches. 

We have also reported that although third-party financing arrangements, 
such as EUL, can make it easier for agencies to manage within a given 
amount of budget authority, they also increase the need for effective 
implementation and monitoring by agencies to ensure that the 
government's interests are protected.[Footnote 3] We found that many 
partnership arrangements, such as EUL, included specific attributes 
that did not require agencies to reflect the full, up-front costs in 
the budget. For example, in one case, under its EUL authority, the 
Veterans Administration (VA) leased out land to a developer with a 35- 
year no-cost enhanced use lease. The developer built a facility on the 
property to provide housing for single homeless individuals. The 
developer agreed to give veterans referred by VA priority placement for 
at least 50 percent occupancy of the property. Although the 
improvements may be surrendered to VA at the end of the lease term, the 
transaction was completely invisible in VA's budget because it did not 
involve cash consideration. 

The Comptroller General has also testified that public-private 
partnerships can be a viable option for redeveloping obsolete federal 
property if they provide the best economic value for the government, 
compared with other options, such as federal financing through 
appropriations or sale of the property.[Footnote 4] He also testified 
that full transparency with regard to the government's real property 
activities and an effective system to measure results are needed. 

Results in Brief: 

Since beginning the EUL demonstration, NASA has realized about $1.3 
million in EUL-related financial benefits--$972,546 of lease revenue 
and over $350,000 of in-kind consideration--most of which would not 
have been realized by NASA without EUL authority.[Footnote 5] Under its 
existing authorities, the agency would have been required to remit 
lease revenue in excess of costs to the U.S. Treasury and would not 
have been allowed to accept in-kind consideration exceeding costs for 
rent, except to a limited extent for historic property. Of the lease 
revenue collected, NASA spent about $480,000--all at Ames Research 
Center--on maintenance and improvement of real property assets. 

NASA is using EUL authority to develop underutilized real property at 
Ames and Kennedy for use by others. Ames and Kennedy have entered into 
EUL agreements for underutilized office space, unique research and 
development facilities, and land. In addition, both centers plan to use 
EUL authority to incorporate research parks (for Kennedy, an 
"exploration park") into their plans for expansion of their 
capabilities to support the NASA mission. According to agency 
officials, while NASA would have leased some of its underutilized 
property under existing authorities, the ability to collect rent as 
well as in-kind consideration under NASA's EUL authority provided the 
agency with increased incentive and flexibility to develop 
underutilized real property. 

While each demonstration center has mechanisms to ensure that EUL 
agreements provide benefit, beyond rent, to NASA and fair market 
consideration is received for all property, we found that the agency 
does not have adequate controls in place to ensure accountability and 
transparency and to protect the government. For example, the agency has 
not established measures of effectiveness or criteria for determining 
whether EUL represents the best economic value to the government. 
Further, the agency has no accounting system for tracking and reporting 
the value of in-kind consideration, and in some instances, we could not 
trace financial data to source documents and other financial data was 
not readily available. Finally, NASA's implementation of EUL could 
lessen budget transparency. For example, NASA's EUL authority allows 
the agency to accept in-kind consideration in the form of services or 
construction that is not recognized in the agency's budget. In 
addition, EUL cash revenue is not readily apparent within the agency's 
reimbursable budget line. And even though this cash revenue is reported 
to the Congress in NASA's annual EUL report, the budget does not fully 
inform the Congress regarding NASA's use of its EUL authority. 

Conclusion: 

Although EUL authority provides NASA with increased flexibility in 
managing its real property, it also increases the need for effective 
controls and monitoring to ensure that the government's interests are 
protected. Without measures of effectiveness, criteria for determining 
best economic value, and adequate accounting controls and processes, it 
will be difficult for NASA to ensure that EUL is the best option for 
each instance in which EUL is used and that the purpose of the law 
providing NASA with EUL authority is met. In addition, when EUL funds 
and their use are not transparent within the agency's budget, 
congressional decision makers face a knowledge gap relative to 
monitoring NASA's EUL activities. Improved transparency would provide 
the Congress with a more complete basis for assessing NASA's wants and 
needs. If the EUL program is to be expanded, NASA needs to develop an 
agency wide policy that ensures accountability, protects the 
government, and provides transparency regarding the agency's EUL 
activities. 

Recommendation for Executive Action: 

Before NASA considers requesting that the Congress extend EUL authority 
to additional centers, we recommend that the NASA Administrator develop 
an agency wide EUL policy, based upon sound business practices and 
lessons learned from the demonstration centers, that establishes 
controls and processes to ensure accountability and protect the 
government's interests, including: 

* criteria for determining that EUL represents the best economic value 
for the government, compared with other options, such as federal 
financing through appropriations or sale of the property; 

* measures of effectiveness for the EUL program, such as reductions in 
the square footage of underutilized property and in the dollar amount 
of deferred maintenance; and: 

* accounting controls and processes to ensure accountability, such as 
an: 

- accounting system for tracking the value of in-kind consideration and 
an: 

- audit trail and documentation to readily support financial 
transactions. 

In addition, if NASA receives expanded EUL authority, the agency also 
needs to adopt mechanisms to keep the Congress fully informed of the 
agency's activity under EUL authority, including: 

* identifying and quantifying the value of in-kind consideration 
arrangements and expenditures of EUL revenue in its annual EUL reports 
to the Congress, and: 

* reporting the availability and use of EUL funds in the agency's 
operating plans. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report (see encl. I), NASA 
concurred with our recommendation. 

Scope and Methodology: 

To determine the financial impact of EUL authority on NASA, we obtained 
and analyzed pertinent EUL records and quantified financial impact in 
terms of cash and in-kind consideration. To ascertain whether these 
benefits would have been realized in the absence of the authority, we 
obtained and analyzed copies of all of NASA's pre-existing real 
property authorities, and determined whether they could have provided 
NASA with the revenue and financial benefits realized with EUL 
authority. To clarify our understanding, we conducted interviews with 
cognizant and responsible NASA officials at NASA Headquarters, Ames 
Research Center, and Kennedy Space Center. 

To evaluate the use of the program, we reviewed leasing agreements and 
visually inspected selected leased properties at both demonstration 
centers. We reviewed the centers' future plans for the program and 
discussed NASA's use and plans for the program with cognizant and 
responsible NASA officials at both centers and NASA Headquarters. To 
ascertain whether existing arrangements would have been made in the 
absence of the program, we examined the existing EUL agreements in 
light of NASA's pre-existing real property authorities, discussed 
NASA's pre-EUL authority development plans, and identified instances 
when NASA originally planned to develop property, currently being 
developed under EUL authority, with other real property authorities. We 
also interviewed responsible NASA officials to determine whether NASA 
would have made the current arrangements and plans without the EUL 
authority. 

To assess the controls NASA has in place to ensure accountability and 
transparency and to protect the government, we judgmentally sampled EUL 
leasing agreements and discussed the selected lease arrangements with 
cognizant and responsible NASA officials. We obtained each center's 
records of the financial transactions associated with the selected 
leasing agreements, and we attempted to reconcile these records with 
the leases and support agreements. We also had extensive discussions 
with cognizant and responsible NASA officials regarding in-kind 
consideration transactions, fair market value, value beyond rent to 
NASA, criteria for determining the best economic value to the 
government, accounting for EUL in NASA's budget, and measures of 
effectiveness. 

To accomplish our work, we visited NASA Headquarters, Washington, D.C; 
Ames Research Center, California; and Kennedy Space Center, Florida. We 
conducted our work from July 2006 through December 2006 in accordance 
with generally accepted government auditing standards. 

We will send copies of the report to NASA's Administrator and 
interested congressional committees. We will also make copies available 
to others upon request. In addition, the report will be available at no 
charge on GAO's Web site at http://www.gao.gov. 

Should you or your staff have any questions on matters discussed in 
this report, please contact me at (202) 512-4841 or lia@gao.gov. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. Principal 
contributors to this report were Jim Morrison, Assistant Director; 
Sylvia Schatz; Erin Schoening; Robert Swierczek; and John Warren. 

Signed by: 

Allen Li: 
Director: 
Acquisition and Sourcing Management: 

Enclosures: 

120620: 

Enclosure I: Comments from the National Aeronautics and Space 
Administration: 

National Aeronautics and Space Administration: 
Office of the Administrator: 
Washington, DC 20546-0001: 

February 20, 2007: 

Mr. Allen Li: 
Director: 
Acquisition and Sourcing Management: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Li: 

NASA has reviewed the Government Accountability Office (GAO) draft 
report entitled "NASA: Enhanced Use Leasing (EUL) Program Needs 
Additional Controls" (GAO-07-306R). 

In the draft report, GAO recommends that the Administrator take the 
following action: 

Recommendation: Before NASA considers requesting that the Congress 
extend EUL authority to additional Centers, we recommend that the NASA 
Administrator develop an Agency-wide EUL policy, based upon sound 
business practices and lessons learned from the demonstration Centers, 
that establishes controls and processes to ensure accountability and 
protect the Government's interests, including: 

* criteria for determining that EUL represents the best economic value 
for the Government, compared with other options, such as Federal 
financing through appropriations or sale of the property; 

* measures of effectiveness for the EUL program, such as reductions in 
the square footage of underutilized property and in the dollar amount 
of deferred maintenance; 

* accounting controls and processes to ensure accountability, such as 
an: 

- accounting system for tracking the value of in-kind consideration; 

- audit trail and documentation to readily support financial 
transactions. 

In addition, if NASA receives expanded EUL authority, the Agency also 
needs to adopt mechanisms to keep the Congress fully informed of the 
Agency's activity under EUL authority, including: 

* identifying and quantifying the value of in-kind consideration 
arrangements and expenditures of EUL revenue in its annual EUL reports 
to the Congress; 

* reporting the availability and use of EUL funds in the Agency's 
operating plans. 

Concur-: 

NASA concurs with the recommendation. NASA has begun taking the steps 
necessary to develop an Agency-wide EUL policy and to adopt the 
mechanisms to keep the Congress fully informed of its activities under 
EUL authority. 

The schedule for development of this policy will include meetings with 
the resource managers from the Centers, as well as the representatives 
from the Agency's Office of the Chief Financial Officer, the General 
Counsel, the Center Chief Counsel's offices, and the property managers 
from the two demonstration Centers (the Ames Research Center and the 
Kennedy Space Center). Since these two Centers have experience in 
developing EUL leases, they would be the primary participants. The 
following schedule applies: 

* Headquarters/Center workshop for Agency-wide EUL guidance February 
2007 

* Initial draft for review by Centers February 2007: 

* Finalize and disseminate Agency-wide EUL guidance March 2007: 

Thank you for the opportunity to respond to this draft report. 

Signed by: 

Shana Dale: 
Deputy Administrator: 

[End of section] 

Enclosure II: Briefing: 

Why GAO Did This Study: 

In 2003, the National Aeronautics and Space Administration (NASA) was 
authorized to employ enhanced use leasing (EUL) at two demonstration 
centers, allowing the agency to retain the proceeds from leasing out 
underutilized real property and to accept in-kind consideration in lieu 
of cash for rent. NASA selected Ames Research Center and Kennedy Space 
Center for the demonstration program. The agency has requested that the 
Congress extend this authority to at least six NASA centers.  

Section 710 of the NASA Authorization Act of 2005 (Public Law 109-155) 
directed GAO to review NASA’s EUL program. We examined (1) the 
financial impact of the EUL authority on NASA and whether EUL revenue 
and other financial benefits would have been realized without the 
authority, (2) NASA’s use of the authority and whether the arrangements 
made under the authority would have been made in the absence of the 
authority, and (3) what controls are in place to ensure accountability 
and transparency and to protect the government.  The act also directed 
GAO to report back to the Congress by December 30, 2006.

Summary: 

Since beginning the EUL demonstration, NASA has realized about $1.3 
million in EUL-related financial benefits—$972,546 of lease revenue and 
over $350,000 of in-kind consideration—most of which would not have 
been realized by NASA without EUL authority. Under its existing 
authorities, the agency would have been required to remit lease revenue 
in excess of costs to the U.S. Treasury and would not have been allowed 
to accept in-kind consideration exceeding costs for rent, except to a 
limited extent for historic property. Of the lease revenue collected, 
NASA spent about $480,000—all at Ames Research Center—on maintenance 
and improvement of real property assets. In addition to the $1.3 
million, NASA collected $1.2 million—that could have been collected 
without EUL authority—that agency officials told us offset, to some 
extent, the agency’s costs for common services such as security.

NASA is using EUL authority to develop underutilized real property at 
Ames and Kennedy for use by others. Ames and Kennedy have entered into 
EUL agreements for underutilized office space, unique research and 
development facilities, and land, and both centers plan to use EUL 
agreements to develop research parks. According to agency officials, 
while NASA would have conducted some development under existing 
authorities, EUL authority provided the agency with increased incentive 
and flexibility to develop underutilized real property.

While each demonstration center has mechanisms to ensure that EUL 
agreements provide benefit, beyond rent, to NASA and fair market 
consideration is received for all property, we found that the agency 
does not have adequate controls in place to ensure accountability and 
transparency and to protect the government. For example, the agency has 
not established measures of effectiveness or criteria for determining 
whether EUL represents the best economic value to the government. In 
terms of financial accountability, we found weaknesses that hamper 
accountability and transparency. For example, the agency has no 
accounting system for tracking and reporting the value of in-kind 
consideration, and in some instances, we could not trace financial data 
to source documents and financial data were not readily available. 
Finally, NASA’s implementation of EUL could lessen budget transparency. 
For example, NASA’s EUL authority allows the agency to accept in-kind 
consideration in the form of services or construction that is not 
recognized in the budget. In addition, EUL cash revenue is not readily 
apparent within the agency’s reimbursable budget line. 

Briefing Structure: 

Background: page 2; 
Findings: 
NASA Has Realized about $1.3 Million in EUL Benefits: page 3; 
NASA Uses EUL to Develop Underutilized Property: page 4; 
NASA's EUL Program Needs Additional Controls: page 6; 
Appendix: 
Scope, Methodology, and Contributors: page 7. 

Background: 

Real Property is a High-Risk Area: 

Because of long-standing problems with excess and underutilized 
property, deteriorating facilities, unreliable real property data, and 
costly space challenges, GAO designated federal real property as a high-
risk area in January 2003. We have reported that many federal real 
property assets—including facilities and land worth hundreds of 
billions of dollars—are in an alarming state of deterioration, and 
agencies have estimated restoration and repair needs to be in the tens 
of billions of dollars. 

Like many federal agencies, NASA faces considerable challenges 
addressing facilities needs with limited funds. As the ninth largest 
federal government property holder, NASA owns more than 100,000 acres 
of real estate, as well as over 3,000 buildings and 3,000 other 
structures totaling over 44 million square feet. However, the agency 
has large and growing capital repair needs. NASA’s property database 
shows over $1.8 billion of deferred maintenance for the agency’s 
facilities. In addition, over 10 percent of the agency’s facilities are 
underutilized or not utilized at all. According to NASA’s 2004 Real 
Property Management Plan, critical attention to maintenance and 
recapitalization is required to ensure NASA’s ability to safely and 
effectively achieve its vision and mission.

Alternative Financing Has Been Used by Other Agencies: 

We have reported that in an era of limited resources and growing 
mission needs, many agencies have turned to approaches other than full 
up-front appropriated funding to finance capital. EUL authority—which 
allows agencies to accept cash and/or in-kind consideration for real 
property leases and to retain the proceeds—is one of these alternative 
approaches.  

In December 2004, we reported that although third-party financing 
arrangements, such as EUL, can make it easier for agencies to manage 
within a given amount of budget authority, they also increase the need 
for effective implementation and monitoring by agencies to ensure that 
the government’s interests are protected. We reported that many 
partnership arrangements, such as EUL, were structured to include 
specific attributes that did not require agencies to reflect the full, 
up-front costs in the budget. For example, in one case, the Veterans 
Administration (VA) outleased land to a developer with a 35-year no-
cost enhanced use lease. The developer built a facility on the property 
to provide housing for single homeless individuals. The developer 
agreed to give veterans referred by VA priority placement for at least 
50 percent occupancy of the property. Although the improvements may be 
surrendered to VA at the end of the lease term, the transaction was 
completely invisible in VA’s budget because it did not involve cash 
consideration.

Related GAO Reports: 

GAO, Defense Infrastructure: Greater Management Emphasis Needed to 
Increase the Services’ Use of Expanded Leasing Authority, GAO-02-475 
(Washington, D.C.: June 6, 2002).

Statement of David M. Walker, before the Senate Committee on 
Governmental Affairs, Federal Real Property: Actions Needed to Address 
Long-standing and Complex Problems, GAO-04-119T (Washington, D.C.: Oct. 
1, 2003).

GAO, Budget Issues: Alternative Approaches to Finance Federal Capital, 
GAO-03-1011 (Washington, D.C.: Aug. 21, 2003).

GAO, Capital Financing: Partnerships and Energy Savings Performance 
Contracts Raise Budgeting and Monitoring Concerns, GAO-05-55 
(Washington, D.C.: Dec. 16, 2004).

Statement of David M. Walker, before the Senate Committee on Homeland 
Security and Governmental Affairs, Subcommittee on Federal Financial 
Management, Government Information, and International Security, Budget 
Process: Better Transparency, Controls, Triggers, and Default 
Mechanisms Would Help to Address Our Large and Growing Long-term Fiscal 
Challenge, GAO-06-761T (Washington, D.C.: May 25, 2006).

Findings: NASA's EUL Authority: 

NASA’s EUL authority—granted by the Congress in 2003—affords the agency 
the opportunity to lease out underutilized real property in exchange 
for cash and/or in-kind consideration, such as improvement of NASA’s 
facilities or the provision of services to NASA. Further, NASA can 
deposit funds not used to cover lease costs in a no-year capital 
account to be available for maintenance, capital revitalization, and 
improvement of the real property, albeit only at the demonstration 
centers. Unlike other agencies with EUL authority, however, NASA is not 
authorized to lease back the property during the term of the lease. 

NASA is required by the enabling law to submit an annual report by 
January 31 of each year regarding the status of the EUL demonstration. 
Thus far, these annual reports have included descriptions of the status 
of the demonstration and planned activities, as well as tables listing 
enhanced use lease agreements and showing annual rent and common 
service charges for each lease.

NASA Has Realized about $1.3 Million in EUL Benefits: 

NASA has realized about $1.3 million in EUL-related financial benefits 
since beginning the EUL demonstration—most of which would not have been 
realized by NASA without EUL authority. However, without EUL authority, 
some of these financial benefits could have accrued to the federal 
government.
 
* Under its existing real property authorities, NASA would have been 
required to return lease proceeds in excess of costs to the general 
fund of the U.S. Treasury and could not have accepted in-kind 
consideration exceeding costs for rent, except to a limited extent for 
historic property under the National Historic Preservation Act (NHPA).
* The agency collected $972,546 of gross lease revenue. Of this amount, 
$58,792 for general and administrative expenses would have been 
retained by NASA, leaving $913,754 net rent that NASA would have been 
required to return to the U.S. Treasury, without specific authority 
allowing the agency to retain the funds. For example, under NHPA, NASA 
could have retained $416,029 net rent for 2 years, but the funds had to 
be used in conjunction with preserving historic property. With EUL 
authority, NASA can retain the entire $913,754 net rent indefinitely 
and can expend the funds on any properties at the demonstration centers.
* Ames realized in-kind consideration worth over $350,000 for tenant 
improvements and animal husbandry services, according to agency 
officials, that could not have been accepted without EUL authority.

Of the amount collected, NASA spent about $480,000—all at Ames—on 
maintenance and improvement of real property assets.

In addition to the $1.3 million, NASA collected $1.2 million—that could 
have been collected without EUL—that agency officials told us offset, 
to some extent, the agency’s costs for common services such as security 
and fire protection.

EUL Financial Benefits by Fiscal year: 

Ames: Cash; 
FY 2004: $59,866; 
FY 2005: $318,190; 
FY 2006: $531,356; 
Totals: $909,412. 

Ames: In-kind; 
FY 2004: $94,967; 
FY 2005: $108,000; 
FY 2006: $149,029; 
Totals: $351,996. 

Kennedy: Cash; 
FY 2004: $3,000; 
FY 2005: $29,512; 
FY 2006: $30,622; 
Totals: $63,134. 

Kennedy: In-Kind; 
FY 2004: 0; 
FY 2005: 0; 
FY 2006: 0; 
Totals: 0. 

Total;  
FY 2004: $157,833; 
FY 2005: $455,702; 
FY 2006: $711,007; 
Totals: $1,324,542. 

Source: NASA data, GAO analysis. 

Note: Because of financial management weaknesses identified during our 
limited review of NASA’s data, we were unable to confirm the accuracy 
of the amounts presented in this table. Also, amounts for fiscal year 
2006 include estimates for September 2006. 

[End of Table] 

Key elements of Other NASA REal Property Authorities: 

Concession Authority 
This authorizes agreements for outreach and visitor centers.  The 
concessionaire is allowed to charge admission fees and to make a profit 
commensurate with the capital invested and the obligations assumed.

Space Act—Lease Authority These leases cannot exceed 5 years and 
require Treasury to receive fair value in money.  But all amounts 
exceeding cost must be returned to the Treasury. These leases must 
include a termination-for-convenience clause.

Space Act—Other Transactions
There is no term limit on other transaction leases. NASA can obtain 
either monetary or in-kind consideration. However, unlike with EUL 
authority, the agency cannot retain consideration exceeding costs.

National Historic Preservation Act
NASA can lease historic property to ensure its preservation.  Historic 
property can be leased for less than fair market value if the tenant 
assumes responsibility for maintaining and preserving the property. 
Cash consideration may be retained by NASA for up to 2 fiscal years to 
defray costs associated with the property.

NASA Uses EUL to Develop Underutilized Property: 

NASA is currently using EUL authority to maintain and develop 
underutilized real property at Ames and Kennedy.  

* Ames has entered into over 50 EUL agreements, leasing out 
underutilized office space and unique research and development 
facilities.  Much of the space is located in the historic portion of 
the old Moffett Field Naval Base.
 
* Kennedy has entered into 8 EUL agreements for ground leases for press 
sites and telecommunication equipment.

* Both centers plan to use EUL agreements, in conjunction with private 
financing, to develop research parks.

NASA would have developed some of the properties leased out under EUL 
using other authorities. 
   
* Ames’ research park, according to Ames officials, was first approved 
for development with existing authorities during the Clinton 
administration.

* Ames’ renovation of historic property could have been done using 
NHPA. For example, Ames used NHPA to lease a historic building to a 
university.

* Kennedy, before receiving EUL authority, leased out press sites and 
worked with the Spaceport Florida Authority to build a laboratory 
facility as the “magnet facility” for the Kennedy research park under 
the Space Act. 

Kennedy, according to agency officials, may use EUL authority to 
develop improved visitor centers. The agency, however, has used 
concessions agreements to build and maintain visitor centers, including 
the new Saturn V concession.

Figure: SATURN V Concession at Kennedy Space Center: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

EUL authority provided NASA with increased incentive and flexibility to 
develop underutilized real property.

* Retaining revenue exceeding costs and maintaining no-year capital 
accounts motivate the agency to invest the time necessary to establish 
the arrangement.
- NASA implemented an aggressive plan at Ames to vacate NASA employees 
from one historic building to lease the space to EUL tenants and 
increase the EUL revenue stream. According to agency officials, a 
second objective of vacating the employees was to consolidate them 
within Ames’ fenced area to improve security and efficiency.
- NASA used EUL funds to improve the historic building, making it more 
attractive to potential EUL tenants.

* Accepting in-kind consideration in lieu of cash for payment provides 
flexibility in negotiating agreements. For example, 
- Accepting building improvements in lieu of cash rent allowed NASA to 
negotiate some agreements. In these instances, NASA gets an improved 
building and the tenant gets tailored space at the same cost.
- Accepting services in lieu of cash rent allowed NASA to receive 
needed services and to retain ownership of a unique asset—the Animal 
Care Facility—with no cash outlay.

Centers' Implementation Models Differ: 

Ames Research Center

* Ames is acting as its own master developer. 
* Ames property is in a fully developed, desirable high- rent 
area—Silicon Valley.
* Ames is required by an environmental impact study to include on-site 
housing to mitigate traffic.
* Ames’ planned development is a campus-like addition, with common 
areas and recreation facilities, to the existing historic district of 
Moffett Field.  

Kennedy Space Center

* Kennedy property is low- value, unimproved swampy land.
* Kennedy is using an acquisition-like approach, including a request 
for proposal, to select a research park developer.
* According to agency officials, Kennedy plans to use a similar 
approach for future developments, such as the visitor center. 

Elements of Accountability and Transparency: 

NASA’s financial management requirements stipulate that recorded 
transactions be adequately documented so they may be traced from 
original documents to financial statements, that a clear audit trail be 
established, and that accounting and financial management data be 
recorded and reported in the same manner throughout NASA, using uniform 
definitions. These internal controls protect the agency against fraud, 
waste, and abuse; ensure the accuracy and reliability of accounting and 
operational data; and ensure compliance with federal laws and 
regulations.

In October 2003, the Comptroller General testified that public-private 
partnerships can be a viable option for redeveloping obsolete federal 
property if they provide the best economic value for the government, 
compared with other options, such as federal financing through 
appropriations or sale of the property. He also testified that full 
transparency with regard to the government’s real property activities 
and an effective system to measure results are needed.

NASA's EUL Program Needs Additional Controls: 

Each center has mechanisms to ensure that EUL agreements provide 
benefit, beyond rent, to NASA and fair market value consideration is 
received for all property.  For example,

* Ames and Kennedy review potential EUL agreements to ensure that they 
support NASA’s mission.

* The demonstration centers use a combination of property appraisals 
and rent surveys to determine fair market value.

However, NASA has not established adequate controls to ensure 
accountability and protect the government.  For example,

* NASA has not adopted measures of effectiveness or criteria for 
determining best economic value to the government, according to agency 
officials.

* We found financial management weaknesses that hamper accountability.
- The agency has no accounting system for tracking and reporting the 
value of in-kind consideration.
- In some instances, we could not trace financial data to source 
documents and financial data were not readily available.

NASA’s implementation of EUL could lessen budget transparency. For 
example,

* In-kind consideration agreements are not recognized in the budget.

* The collection and use of EUL revenue are not readily apparent within 
the agency’s reimbursable budget line.

* NASA has previously proposed controls that could mitigate budget 
transparency concerns, including a $25 million annual limitation on EUL 
income and prohibitions on the use of EUL for the purpose of 
construction of NASA-owned facilities. 

Appendix: 

Scope and Methodology: 

To determine the financial impact of EUL authority on NASA, we obtained 
and analyzed pertinent EUL records and quantified financial impact in 
terms of cash and in-kind consideration. To ascertain whether these 
benefits would have been realized in the absence of the authority, we 
obtained and analyzed copies of all of NASA’s pre-existing real 
property authorities, and determined whether they could have provided 
NASA with the revenue and financial benefits realized with EUL 
authority. To clarify our understanding, we conducted interviews with 
cognizant and responsible NASA officials at NASA Headquarters, Ames 
Research Center, and Kennedy Space Center. 
 
To evaluate the use of the program, we reviewed leasing agreements and 
visually inspected selected leased properties at both demonstration 
centers. We reviewed the centers’ future plans for the program and 
discussed NASA’s use and plans for the program with cognizant and 
responsible NASA officials at both centers and NASA Headquarters. To 
ascertain whether existing arrangements would have been made in the 
absence of the program, we examined the existing EUL agreements in 
light of NASA’s pre-existing real property authorities, discussed 
NASA’s pre-EUL authority development plans, and identified instances 
when NASA originally planned to develop property, currently being 
developed under EUL authority, with other real property authorities. We 
also interviewed responsible NASA officials to determine whether NASA 
would have made the current arrangements and plans without the EUL 
authority. 

To assess the controls NASA has in place to ensure accountability and 
transparency and to protect the government, we judgmentally sampled EUL 
leasing agreements and discussed the selected lease arrangements with 
cognizant and responsible NASA officials. We obtained each center’s 
records of the financial transactions associated with the selected 
leasing agreements, and we attempted to reconcile these records with 
the leases and support agreements.  We also had extensive discussions 
with cognizant and responsible NASA officials regarding in-kind 
consideration transactions, fair market value, value beyond rent to 
NASA, criteria for determining the best economic value to the 
government, accounting for EUL in NASA’s budget, and measures of 
effectiveness.

To accomplish our work, we visited NASA Headquarters, Washington, D.C.; 
Ames Research Center, Moffett Field, California; and Kennedy Space 
Center, Florida.

Contributors: 

If you have any questions concerning this briefing, please call Allen 
Li at (202) 512-4841. Other key contributors to this report were Jim 
Morrison, Assistant Director; Sylvia Schatz; Erin Schoening; Robert 
Swierczek; and John Warren.

[End of section] 

FOOTNOTES 

[1] Statement of David M. Walker, before the Senate Committee on 
Governmental Affairs, Federal Real Property: Actions Needed to Address 
Long-standing and Complex Problems, GAO-04-119T (Washington, D.C.: Oct. 
1, 2003). 

[2] GAO, Budget Issues: Alternative Approaches to Finance Federal 
Capital, GAO-03-1011 (Washington, D.C.: Aug. 21, 2003). 

[3] GAO, Capital Financing: Partnerships and Energy Savings Performance 
Contracts Raise Budgeting and Monitoring Concerns, GAO-05-55 
(Washington, D.C.: Dec. 16, 2004). 

[4] GAO-04-119T. 

[5] In addition to the $1.3 million, NASA collected $1.2 million--that 
could have been collected without EUL authority--that agency officials 
told us offset, to some extent, the agency's costs for common services 
such as security. 

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