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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: 

December 2012: 

Federal Real Property: 

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

GAO-13-14: 

GAO Highlights: 

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: 

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 
federal real property agencies including four agencies that use 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 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. 

[Figure: Refer to PDF for image: 2 photographs] 

Federal Real Property leased through an EUL agreement between VA and 
Clark County, Washington to construct a Crisis Triage Center in 
Vancouver, Washington. Left photo: the vacant site in July 2004. Right 
photo: the developed site in May 2012. 

Source: Swinerton Builders (left) and GAO (right). 

[End of figure] 

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 [hyperlink, http://www.gao.gov/products/GAO-13-14]. For more 
information, contact David Wise at (202) 512-2834 or wised@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

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

Agencies' Experiences in Using EULs Provide Illustrative Examples about 
EUL Use: 

Conclusions: 

Recommendation: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

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

Appendix III: Comments from Veterans Affairs: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: General Description of EULs at Selected Agencies: 

Table 2: Agencies' Reported Cash Rent Revenue from EULs, Fiscal Year 
2011: 

Table 3: VA EUL Leaseback Costs in Fiscal Year 2011: 

Table 4: EULs by Agency: 

Figures: 

Figure 1: Department of State EUL for the Hôtel de Talleyrand in Paris, 
France: 

Figure 2: Department of State's EUL for a Condominium Development in 
Singapore: 

Figure 3: Housing Facility Located on Property that VA Leases to the 
Vancouver Housing Authority in Vancouver, Washington: 

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: 

[End of section] 

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.[Footnote 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.[Footnote 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.[Footnote 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.[Footnote 4] In 2011, we raised 
concerns about how the Department of Defense monitored the costs of its 
EUL program.[Footnote 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[Footnote 6] and identified agencies 
as candidates for a detailed review of EUL use.[Footnote 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;[Footnote 8] and interviews with officials at the four agencies 
that indicated they use EULs--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 study locations to observe the properties. 
[Footnote 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. 

Background: 

EULs are typically long-term leases of federal land or buildings to 
public 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 
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.[Footnote 10] VA may not enter into an EUL without 
advanced written certification from OMB that the lease complies with 
the statutory requirements.[Footnote 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 measurable 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.[Footnote 12] NASA 
may not enter into leasebacks.[Footnote 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.[Footnote 
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.[Footnote 
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 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.[Footnote 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.[Footnote 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: VA; 
General description of EULs: EULs are located on VA sites 
throughout the nation and vary from individual buildings on VA campuses 
to entire VA campuses. 

Agency: NASA; 
General description of EULs: 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. 

Agency: State; 
General description of EULs: EULs are for former U.S. 
diplomatic sites in France, Singapore, and Turkey. 

Agency: USDA; 
General description of EULs: Single EUL is limited to 
greenhouse space at a facility in Beltsville, Maryland. 

Source: GAO analysis of agency data. 

[End of table] 

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 
arrangements.[Footnote 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.[Footnote 19] 

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

Agencies Cited Various EUL Benefits: 

Agency officials told us that EULs provide a variety of benefits to the 
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. 

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. 

Figure 1: Department of State EUL for the Hôtel de Talleyrand in Paris, 
France: 

[Refer to PDF for image: photograph] 

Source: Department of State. 

[End of figure] 

* 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.[Footnote 20] See table 2 for the total cash rent 
revenue the four agencies in our review received in fiscal year 2011. 

Table 2: Agencies' Reported Cash Rent Revenue from EULs, Fiscal Year 
2011: 

Agency: NASA; 
Total cash rent revenue: $8.0 million; 
Number of EULs: 71. 

Agency: State; 
Total cash rent revenue: $1.8 million; 
Number of EULs: 3. 

Agency: VA; 
Total cash rent revenue: $1.3 million; 
Number of EULs: 53. 

Agency: USDA; 
Total cash rent revenue: $15,569[A]; 
Number of EULs: 1. 

Source: GAO analysis of agency data. 

[A] Rental income commenced May 20, 2011. 

[End of table] 

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.[Footnote 21] The lessee, a developer, constructed 
condominiums on the land (see figure 2). Over the course of its 51-year 
lease for its Istanbul embassy property, State will receive 
approximately $20.6 million in cash revenue. 

Figure 2: Department of State's EUL for a Condominium Development in 
Singapore: 

[Refer to PDF for image: photograph] 

Source: Department of State. 

[End of figure] 

* 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 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.[Footnote 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.[Footnote 23] 

Figure 3: Housing Facility Located on Property that VA Leases to the 
Vancouver Housing Authority in Vancouver, Washington: 

[Refer to PDF for image: photograph] 

Source: GAO. 

[End of figure] 

* 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.[Footnote 24] 

* 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 Attribute All Costs of EULs to Their EUL Programs 
in a Consistent, Appropriate Manner: 

Some of the agencies we reviewed do not include all costs associated 
with their EULs when they assess the performance of their EUL programs. 
Federal agencies are required to assess and report the full costs of 
their activities to provide relevant and reliable cost information to 
assist the Congress and federal executives in making decisions about 
allocating federal resources, assessing costs and benefits to compare 
alternative courses of action, authorizing and modifying programs, and 
evaluating program performance.[Footnote 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 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.[Footnote 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 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.[Footnote 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, 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. 

Agencies' Experiences in Using EULs Provide Illustrative Examples about 
EUL Use: 

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 agencies raised issues pertaining to EULs 
that affect their use or budgetary treatment. First, NASA has reported 
that the limitation on its authority to accept in-kind consideration 
has limited its ability to encourage use of EULs and investments in 
underutilized NASA property. Second, recognizing potential budget 
impacts associated with 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 
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.[Footnote 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 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.[Footnote 29] In general, we have also 
consistently stated that the full costs of the government's commitments 
should be reflected upfront in the budget.[Footnote 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. 

Table 3: VA EUL Leaseback Costs in Fiscal Year 2011: 

EUL location: Leavenworth, Kansas; 
Type of EUL project: Residential health care; 
VA leaseback costs, fiscal year 2011: $14,989[A]. 

EUL location: Milwaukee, Wisconsin; 
Type of EUL project: Office space for VA regional staff; 
VA leaseback costs, fiscal year 2011: $2,448,713. 

EUL location: Somerville, New Jersey; 
Type of EUL project: Mixed use warehouse; 
VA leaseback costs, fiscal year 2011: $181,391. 

EUL location: Salt Lake City I, Utah; 
Type of EUL project: Office space for VA regional and field staff; 
VA leaseback costs, fiscal year 2011: $2,142,451. 

EUL location: Salt Lake City II, Utah; 
Type of EUL project: Office space for VA regional and field staff; 
VA leaseback costs, fiscal year 2011: $2,626,209. 

EUL location: Chicago (Westside), Illinois; 
Type of EUL project: Office space for VA regional staff; 
VA leaseback costs, fiscal year 2011: 
$3,502,894. 

EUL location: Atlanta, Georgia; 
Type of EUL project: Office space for VA regional staff; 
VA leaseback costs, fiscal year 2011: $4,910,903. 

EUL location: Total; 
VA leaseback costs, fiscal year 2011: $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. 

[End of table] 

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,[Footnote 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 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.[Footnote 32] 

Conclusions: 

Agencies have shown that EULs have the potential to produce mission-
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. 

Recommendation: 

To promote transparency about EULs, improve decision-making 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. 

Agency Comments: 

We provided a draft of this report to the Deputy Director for 
Management 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 [hyperlink, 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, 

Signed by: 

David J. Wise: 
Director: 
Physical Infrastructure Issues: 

[End of section] 

Appendix I: Objectives, Scope, and 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,[Footnote 33] 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.[Footnote 34] 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,[Footnote 35] (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 selected the 4 agencies (VA, NASA, State and USDA) that 
have used their EUL authority to enter into EULs.[Footnote 36] 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. 

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. 

[End of section] 

Appendix II: 16 Case Study Enhanced 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: VA; 
Location: Somerville, New Jersey; 
Agency property: Warehouse; 
EUL tenant use of property: Renovate warehouse. 

Agency: VA; 
Location: Vancouver, Washington; 
Agency property: Vacant land; 
EUL tenant use of property: Construct health care facility. 

Agency: VA; 
Location: Vancouver, Washington; 
Agency property: Vacant land; 
EUL tenant use of property: Construct housing. 

Agency: VA; 
Location: Fort Howard, Maryland; 
Agency property: Vacant land and buildings; 
EUL tenant use of property: Construct housing. 

Agency: VA; 
Location: Chicago, Illinois (Westside); 
Agency property: Vacant land; 
EUL tenant use of property: Construct office space and parking 
facility. 

Agency: VA; 
Location: Chicago, Illinois; 
Agency property: Vacant land; 
EUL tenant use of property: Construct energy center. 

Agency: VA; 
Location: Mountain Home, Tennessee; 
Agency property: Vacant land; 
EUL tenant use of property: Construct co-generation plant. 

Agency: VA; 
Location: North Chicago, Illinois; 
Agency property: Vacant land; 
EUL tenant use of property: Construct energy center. 

Agency: NASA; 
Location: Moffett Field, California; 
Agency property: Animal research facility; 
EUL tenant use of property: Animal husbandry and research. 

Agency: NASA; 
Location: Moffett Field, California; 
Agency property: Warehouse; 
EUL tenant use of property: Electric vehicle research. 

Agency: NASA; 
Location: Moffett Field, California; 
Agency property: Vacant land; 
EUL tenant use of property: Construct multi-story office buildings and 
research and development space. 

Agency: NASA; 
Location: Moffett Field, California; 
Agency property: Hangar; 
EUL tenant use of property: Storage of satellite equipment. 

Agency: State; 
Location: Istanbul, Turkey; 
Agency property: Historic embassy compound; 
EUL tenant use of property: Restore and convert buildings, construct 
hotel. 

Agency: State; 
Location: Paris, France; 
Agency property: Historically significant building; 
EUL tenant use of property: Restore building and lease office space. 

Agency: State; 
Location: Singapore; 
Agency property: Embassy property; 
EUL tenant use of property: Build condominiums. 

Agency: USDA; 
Location: Beltsville, Maryland; 
Agency property: Greenhouse; 
EUL tenant use of property: Plant-based research. 

Source: GAO analysis of agency data. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Veterans Affairs: 

Appendix III: Comments from the Department of Veterans Affairs: 

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

Department of Veterans Affairs: 
Washington DC 20420: 

November 29, 2012: 

Mr. David Wise: 
Director, Physical Infrastructure: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Wise: 

The Department of Veterans Affairs (VA) has reviewed the Government 
Accountability Office's (GAO) draft report, "Federal Real Property: 
Improved Cost Reporting Would Help Decision Makers Weigh the Benefits 
of Enhanced Use Leasing" (GAO-13-14). VA supports the overall 
recommendation that OMB improve its guidance regarding costs 
associated with enhanced use leases (EUL). 

Although VA supports efforts to improve guidance on costs associated 
with EULs, we believe that more cost reporting requirements and 
standardization should not be structured in such a way as to stymie 
the use of EUL authority. Increased standardization of EUL costs 
should not come at the expense of providing much needed services to 
Veterans. 

Particularly given the current budgetary constraints, VA's EUL 
authority continues to serve as a significant tool for VA to provide 
services to Veterans, and to help achieve Secretary Shinseki's goal to 
end Veteran homelessness by 2015. It also enables VA to reduce its 
real property footprint, and contributes to the President's Federal 
real property initiatives, by reducing VA's inventory of underutilized 
and vacant assets. In addition, by providing Veteran housing and 
reducing VA's real property footprint, EULs enable VA to transfer 
operation and maintenance costs of underutilized real estate to•EUL 
developers. This in turn frees up resources that VA can redirect 
towards serving Veterans. 

VA needs to use all available tools at its disposal, including EUL and 
public/private partnerships, to manage our footprint and provide 
services to our Veterans. 

VA appreciates the opportunity to comment on your draft report and is 
providing a technical comment. 

Sincerely, 

Signed by: 

John R. Gingrich: 
Chief of Staff: 

Enclosure: 

Department of Veterans Affairs (VA) Comments to Government 
Accountability Office (GAO) Draft Report "Federal Real Property: 
Improved Cost Reporting Would Help Decision Makers Weigh the Benefits 
of Enhanced Use Leasing" (GAO-13-14): 

Technical Comments: 

Highlights Page, "What GAO Found", second paragraph, last two 
sentences: "Second, VA's has faced challenges regarding....upfront in 
the federal budget." [See comment 1] 

VA recommended change: 

"Second, VA's use of energy service agreements (ESA), which in 
conjunction with EULs, have replaced traditional utility contracts, 
have raised some scoring concerns from CBO. VA identifies utility 
costs in its annual budget submission. More pronounced Illumination of 
these agreements and associated costs in the budget; in additional to 
what is already provided to Congress, may better inform all parties." 

Page 10, first bullet: Recommend inserting the following after the 
last sentence: 

"VA is recalculating and updating EUL calculation methodology used to 
report expenses and benefits. The revised EUL lease consideration 
calculations, as directed by Public Law 112-154, will be reported in 
the FY 2014 Budget that will be released in February 2013." [now on p. 
11; See comment 2] 

Page 13, first bullet, last sentence: "However, VA officials....EUL 
program." [now on p. 14; See comment e] 

VA recommended change: 

"However, VA officials said that they were unable to attribute EUL 
consultant costs to individual EULs, and consequently chose not to 
attribute them to individual EUL projects. Instead the costs are 
included as part of the overall management of the program. VA believes 
this treatment is appropriate because not all EUL consultant services 
and costs relate to one specific, contemplated EUL project, and not 
all EUL projects reach fruition (execution) due to issues/problems 
identified during the feasibility/due diligence/financing phases. 
Thus, VA believes that the overall "program management" costs need to 
be reported in VA's consideration reporting." 

Page 13, last paragraph, last sentence: "VA officials said....  
administrative cost category." [now on p. 15; See comment 4] 

VA recommended change: 

"VA officials said that the agency does not attribute costs associated 
with termination to its total EUL program costs because it attributes 
these costs to the cost of the overall program." 

Technical Comments: 

Page 14, "Leaseback Costs", first paragraph: Recommend inserting the 
following after the last sentence: [now on p. 15; See comment 5] 

The acquisition of the second bay was independent of the initial 
requirement to store clothing for Homeless Veteran programs (the need 
was not identified at the time of lease execution), and conceptually 
could have been sited at some other medical facility in the VA system." 

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

GAO Comments: 

1. VA suggested changing this paragraph related to its energy programs. 
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. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David J. Wise at (202) 512-2834 or at wised@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Keith Cunningham, Assistant 
Director; Amy Abramowitz; Melissa Bodeau; Carol Henn; Hannah Laufe; 
James Leonard; Sara Ann Moessbauer; Lisa G. Shibata; and Crystal Wesco 
made key contributions to his report. 

[End of section] 

Footnotes: 

[1] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/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, 
[hyperlink, http://www.gao.gov/products/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, [hyperlink, 
http://www.gao.gov/products/GAO-09-3SP] (Washington, 
D.C.: March 2009). 

[5] GAO, Defense Infrastructure: The Enhanced Use Lease Program 
Requires Management Attention, [hyperlink, 
http://www.gao.gov/products/GAO-11-574], (Washington, D.C.: June 30, 
2011). 

[6] GAO, [hyperlink, http://www.gao.gov/products/GAO-11-574]; GAO, 
NASA: Enhanced Use Leasing Program Needs 
Additional Controls, [hyperlink, 
http://www.gao.gov/products/GAO-07-306R] (Washington, D.C.: Mar. 1, 
2007); and 
GAO, Capital Financing: Partnerships and Energy Savings Performance 
Contracts Raise Budgeting and Monitoring Concerns, [hyperlink, 
http://www.gao.gov/products/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 [hyperlink, 
http://www.gao.gov/products/GAO-11-574]. 

[8] [hyperlink, http://www.gao.gov/products/GAO-09-283R]. 

[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. 

[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. 

[16] Pub. L. No. 108-199, § 633(e) (Jan. 23, 2004). 

[17] 7 U.S.C. § 3125a note. 

[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. 

[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. 

[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. 

[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). 

[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. 

[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). 

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

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

[28] For prior GAO reports on the budgetary treatment of federal 
leases; see, for example, [hyperlink, 
http://www.gao.gov/products/GAO-05-55]; GAO, Budget Issues: Alternative 
Approaches to Finance Federal Capital, [hyperlink, 
http://www.gao.gov/products/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, [hyperlink, http://www.gao.gov/products/GAO-06-918] 
Washington, D.C.: Sept. 8, 2006). 

[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 [hyperlink, http://www.gao.gov/products/GAO-05-55], 
[hyperlink, http://www.gao.gov/products/GAO-03-1011], and [hyperlink, 
http://www.gao.gov/products/GAO-06-918]. 

[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. 

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

[33] GAO, Defense Infrastructure: The Enhanced Use Lease Program 
Requires Management Attention, [hyperlink, 
http://www.gao.gov/products/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, [hyperlink, 
http://www.gao.gov/products/GAO-09-283R] (Washington, D.C.: Feb. 17, 
2009); GAO, NASA: Enhanced Use Leasing Program Needs Additional 
Controls, [hyperlink, http://www.gao.gov/products/GAO-07-306R] 
(Washington, D.C.: Mar. 
1, 2007); and GAO, Capital Financing: Partnerships and Energy Savings 
Performance Contracts Raise Budgeting and Monitoring Concerns, 
[hyperlink, http://www.gao.gov/products/GAO-05-55], (Washington, D.C.: 
December 16, 2004). 

[34] We excluded the Department of Defense (DOD) because GAO recently 
issued a report on DOD's EUL program, see [hyperlink, 
http://www.gao.gov/products/GAO-11-574]. 

[35] 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, [hyperlink, 
http://www.gao.gov/products/GAO-12-645], (Washington, D.C. June 20, 
2012), but determined that it was suitable for purposes of this report. 

[36] 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, [hyperlink, http://www.gao.gov/products/GAO-11-574]. 

[End of section] 

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