Federal Real Property: NIH Has Improved Its Leasing Process, but
Needs to Provide Congress with Information on Some Leases
(08-SEP-06, GAO-06-918).
The National Institutes of Health (NIH) is the nation's primary
medical and behavioral research agency. NIH's need for leased
space has more than doubled since 1996 to about 3.9 million
square feet in 2005. In 1996, General Services Administration
(GSA) delegated leasing authority to NIH that includes performing
budget scoring and prospectus analysis. In light of NIH's
increased use of leased space, GAO was asked to address two
issues: (1) Is NIH complying with budget scorekeeping guidelines
and Office of Management and Budget's (OMB) requirements for
implementing the guidelines to determine if a lease should be
classified as operating or capital and ensure that no violations
of the Antideficiency Act occur because of improper budget
scorekeeping? and (2) Is NIH complying with the congressional
prospectus process for both leases and alterations to leased
buildings? To address these issues we interviewed leasing and
financial officials, reviewed laws and reviewed budget scoring
and prospectus analysis of 59 leases.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-918
ACCNO: A60486
TITLE: Federal Real Property: NIH Has Improved Its Leasing
Process, but Needs to Provide Congress with Information on Some
Leases
DATE: 09/08/2006
SUBJECT: Budget obligations
Budget scorekeeping
Congressional oversight
Health care facilities
Leasing policies
Program evaluation
Program management
Public Health Service facilities
Real estate leases
Reporting requirements
Anti-deficiency act violations
Leasing Management and Oversight Program
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-06-918
* Results in Brief
* Background
* NIH Has Improved Its Lease Scoring Process and Believes that
* NIH Corrected Weaknesses in Implementation of Prospectus Gui
* Conclusions
* Recommendation for Executive Action
* Agency Comments
* Appendix I: Comments from the Department of Health and Human
* Appendix II: GAO Contact and Staff Acknowledgments
* GAO Contact
* Staff Acknowledgments
* Order by Mail or Phone
Report to the Chairman, Committee on Energy and Commerce, House of
Representatives
United States Government Accountability Office
GAO
September 2006
FEDERAL REAL PROPERTY
NIH Has Improved Its Leasing Process, but Needs to Provide Congress with
Information on Some Leases
GAO-06-918
Contents
Letter 1
Results in Brief 3
Background 5
NIH Has Improved Its Lease Scoring Process and Believes that Its
Unrecorded Obligations for Operating Leases Do Not Violate the
Antideficiency Act 6
NIH Corrected Weaknesses in Implementation of Prospectus Guidance, but
Some Past Prospectus-level Leases Remain Unreported 10
Conclusions 12
Recommendation for Executive Action 12
Agency Comments 13
Appendix I Comments from the Department of Health and Human Services 14
Appendix II GAO Contact and Staff Acknowledgments 16
Abbreviations
GSA General Services Administration
HHS U.S. Department of Health and Human Services
LeMOP Leasing Management and Oversight Program
NIH National Institutes of Health
OBSF Office of Business Systems and Finance
OMB Office of Management and Budget
ORF Office of Resource Facilities
ORFDO Office of Research Facilities Development and Operations
Property Act Federal Property and Administrative Services Act of 1949, as
amended
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
United States Government Accountability Office
Washington, DC 20548
September 8, 2006
The Honorable Joe Barton Chairman Committee on Energy and Commerce House
of Representatives
Dear Mr. Chairman:
The National Institutes of Health (NIH), a part of the U.S. Department of
Health and Human Services (HHS), is the nation's primary medical and
behavioral research agency. Composed of 27 institutes and centers, NIH
provides leadership and financial support to programs designed to protect
and improve the nation's health by conducting research in such areas as
the causes, diagnosis, prevention, and cure of human diseases; the
biological effects of environmental contaminants; and the understanding of
mental, addictive, and physical disorders. At the end of September 2005,
the agency owned or leased more than 17 million square feet of space for
research, administration, and other needs. Since 1996, NIH's leased space
has more than doubled-from about 1.4 million square feet in 1996 to about
3.9 million square feet in 2005.
In September 1996, the General Services Administration (GSA) delegated
authority to HHS to issue leases for a term of up to 20 years and to
perform all functions related to leasing, such as obtaining space in
accordance with all applicable laws and regulations, budget scorekeeping1
guidelines, and the Office of Management and Budget's (OMB) requirements
for implementing the guidelines for leases. Simply put, budget
scorekeeping ensures that agencies comply with budgetary laws. There are
obligational requirements2 that are meant to ensure compliance with fiscal
statutes such as the Antideficiency Act.3 The budget scorekeeping rules
for leases are consistent with the obligational requirements. Thus,
failure to comply with budget scorekeeping guidelines could cause an
Antideficiency Act violation. In addition to transferring this
scorekeeping responsibility to HHS, GSA's delegation provided that, for
each lease whose cost exceeds a legislatively established threshold, the
agency would work through GSA to secure an approved prospectus4 from the
appropriate congressional committees, under the Public Buildings Act of
1959, as amended.5 In December 1996, HHS redelegated its authority to its
four lease-holding agencies, which included NIH. Currently, NIH has 59
active leases issued under its delegated leasing authority with a total
value of about $1.3 billion.
1Budget scorekeeping, of which lease scoring is a part, is the process of
estimating the budgetary effects of pending and enacted legislation and
comparing these effects with limits set in the budget resolution or
legislation. Scorekeeping tracks such data as budget authority, receipts,
outlays, the surplus or deficit, and the public debt limit. Scorekeeping
guidelines for leases require that an agency first determine if a lease is
an operating or capital lease; OMB requirements describe how to calculate
the budget authority that is required to cover the government's legal
obligations and how outlays are to be recorded in agency budgets. In
addition, OMB interprets the scorekeeping guidelines to determine the cost
that should be recognized and recorded as an obligation at the time an
agency signs a contract or enters into a lease. The scorekeepers are the
House and Senate Budget Committees, the Congressional Budget Office, and
OMB. The budget scorekeepers determine the rules, and OMB issues guidance
to the agencies on implementing them.
Because of NIH's increased use of leased space, you asked us to review
certain parts of the agency's leasing process. In response, we addressed
the following issues:
o Is NIH complying with budget scorekeeping guidelines and OMB's
requirements for implementing the guidelines to determine if a
lease should be classified as operating or capital6 and ensure
that no violations of the Antideficiency Act occur because of
improper budget scorekeeping of leases?
o Is NIH complying with the congressional prospectus process for
both leases and alterations to leased buildings?
To address NIH's compliance with budget scorekeeping guidelines
and OMB's requirements, we reviewed (1) the laws and regulations
relating to leases; (2) budget scorekeeping guidelines and OMB's
implementing requirements; (3) the Antideficiency Act; (4) NIH's
inventory of leased properties, its revised budget scoring of the
58 leases7 under its delegated authority in 2003, and its leasing
guidance; and (5) HHS's views on the Antideficiency Act. In
addition, we interviewed HHS's Deputy Assistant Secretary from the
Office for Facilities Management and Policy; NIH's Director of the
Office of Acquisitions; NIH's Acting Chief of the Budget Branch
from the Office of Business and Systems Finance, who performed the
revised budget scoring; other relevant NIH leasing and financial
officials; and GSA officials. We also wrote to OMB concerning
agencies that are considered self-insuring under budget scoring
guidelines.
To address NIH's compliance with the congressional prospectus
process, we (1) reviewed the laws and regulations relating to
leases; (2) GSA's prospectus guidance and delegation of authority
to lease; (3) NIH's inventory of leased properties, its revised
prospectus analysis of the 58 leases under its delegated authority
in 2003, and its leasing guidance. In addition, we interviewed
HHS's Deputy Assistant Secretary from the Office for Facilities
Management and Policy; NIH's Director of the Office of
Acquisitions; NIH's Acting Chief of the Budget Branch from the
Office of Business and Systems Finance, who performed the revised
prospectus analysis; other relevant NIH leasing and financial
officials; and GSA officials. GSA informed us that no alterations
to leased buildings were submitted for prospectus approval between
fiscal years 1996 and 2005. For the purposes of our review, the
information we gathered was sufficiently reliable. We conducted
our work between July 2005 and August 2006 in accordance with
generally accepted government auditing standards.
Results in Brief
NIH has developed a formal leasing process that, if implemented
effectively, should comply with budget scorekeeping guidelines and
OMB's requirements for classifying operating and capital leases.
NIH's process should also ensure that no Antideficiency Act
violations occur due to leasing. NIH was prompted to formalize its
leasing process after it reviewed all its leases in 2003 and
discovered problems with its budget scoring and prospectus
analysis. The agency's new multistep leasing process, which was
developed in 2003 and updated in 2005, now addresses previous
problems with inconsistent and informal implementation of the
guidelines and requirements by properly identifying operating and
capital leases, so the lease obligations may be properly recorded
for budget scoring purposes. Furthermore, to address the improper
classification of eight operating leases identified in its 2003
review, NIH reclassified or renegotiated leases to make them
comply with the budget scoring rules. In October 2005, HHS
expressed its belief that the potential $565 million in unrecorded
obligations from 50 active multiyear NIH leases identified in the
2003 review were not considered to be Antideficiency Act
violations. We agree that no Antideficiency Act violations exist.
According to a GSA official, GSA is modifying its guidance for
delegated leasing authority, which would make it clear that
agencies with delegated leasing authority can score operating
leases in the same manner as GSA. The scoring process for capital
leases would remain unchanged.
As part of its leasing process, NIH has also established decision
points for identifying any leases for which a prospectus should be
submitted for congressional approval under the Public Buildings
Act of 1959, as amended. In addition, NIH's Office of
Acquisitions, Office of Resource Facilities (ORF) is now
responsible for ensuring that the contracting for alterations to
leased buildings does not exceed the prospectus threshold for
alterations to leased buildings. To enforce this threshold, a
warranted real estate contracting officer from the Office of
Acquisitions begins reviewing an alteration to a leased building
project as early as the concept stage. However, there is an
unresolved issue involving some prior NIH prospectus-level leases.
Five leases from past years were not submitted to the appropriate
congressional committees for review and approval, as provided for
in the Public Buildings Act of 1959, as amended. While there is no
penalty provided in law for not submitting a prospectus, failure
to do so hinders the ability of the appropriate congressional
committees to fulfill their oversight responsibilities for all
prospectus-level leases. We are recommending that the Director of
NIH, using GSA as the proper channel, report to the appropriate
congressional committees the five previous NIH prospectus-level
leases that did not follow the congressional prospectus process.
We provided a draft of this report to NIH, HHS and GSA. HHS,
responding for NIH and itself, concurred with our findings and
recommendation and provided some technical comments, which we have
incorporated where appropriate. HHS stated that, as a matter of
policy, it does not object to voluntarily complying with the GSA
prospectus requirements for the five leases dealt with in our
draft report. GSA informed us orally that it had no comments.
Background
In 1996, GSA began a program called "Can't Beat GSA Leasing" that
offered federal agencies the choice of (1) using GSA as their
leasing agent, (2) assuming responsibility for their own leasing,
or (3) using a combination of both options. The program was an
outgrowth of GSA's commitment to streamline its leasing
operations, respond to the government's changing needs, and
address recommendations from client agencies. GSA delegated
leasing authority to HHS in September 1996, and HHS redelegated
this authority to NIH, one of its four lease-holding agencies, in
December 1996. GSA's original delegation consisted of six
conditions, which included the requirements that federal agencies
acquire and utilize leased space in accordance with all applicable
laws and regulations8 and -prior to finalizing lease contracts and
alterations to leased buildings that exceed a legislatively
established threshold-work through GSA to secure an approved
prospectus from the appropriate congressional committees. Since
1997, NIH has elected to rely on GSA for some of its leasing
needs, but it has issued a majority of its leases on its own.
NIH Has Improved Its Lease Scoring Process and Believes that Its
Unrecorded Obligations for Operating Leases Do Not Violate the
Antideficiency Act
In response to past problems identified in a 2003 internal review
of its leases, NIH developed a formal leasing process in 2003 that
includes decision points for budget scoring. The process was
updated in 2005, and if implemented effectively, it should ensure
that NIH leasing complies with OMB's scorekeeping guidelines for
classifying leases. This new process should also ensure that no
violations of the Antideficiency Act occur due to improper
scorekeeping.
The executive and legislative branches formulated the budget
scorekeeping rules in connection with the Budget Enforcement Act
of 1990. The purpose of these rules is to ensure that scorekeepers
adhere to scorekeeping conventions and specific legal requirements
when they measure the effects of legislation. They are also used
by OMB for determining amounts to be recognized in the budget when
an agency signs a contract or enters into a lease. The rules are
reviewed annually by the scorekeepers and revised, as necessary,
to achieve their purpose.9 According to scorekeeping guidelines, a
lease is classified as either operating or capital, based on six
criteria.10 If a lease meets all six criteria, then it qualifies
as an operating lease; otherwise, it must be treated as a capital
lease for purposes of budget scoring. For operating leases for
agencies other than GSA, budget authority is required for the
estimated total payment that is expected to arise under the full
term of the contract or, if the contract includes a cancellation
clause, for an amount sufficient to cover the lease payments for
the first fiscal year plus an amount sufficient to cover the costs
associated with cancellation. For GSA operating leases, only the
budget authority needed to cover the annual lease payment is
required.11 For a capital lease, budget authority is required for
the net present value of the total cost of the lease and property
taxes (but not for imputed interest costs and identifiable annual
operating expenses).
In 2003, NIH's Assistant Director for the Chief Financial Officer
and Central Services asked the Acting Director of the Office of
Research Facilities Development and Operations (ORFDO) to certify
that all leases were operating leases for the purposes of the
annual NIH financial statements, according to an NIH official. To
address this request, the ORFDO Acting Director conducted an
internal risk assessment. This resulted in a review of all NIH's
leases, which identified problems with implementing budget
scorekeeping guidelines and OMB requirements, as well as
identifying prospectus leases. More specifically, this review
identified eight leases that had been improperly classified as
operating leases instead of capital leases and potential
unrecorded obligations from 50 active multiyear operating leases
that totaled $565 million, as of September 30, 2005. According to
the Director of the Office of Acquisitions, NIH's lease scoring
process had been inconsistent and informal from 1996 to 2003,
which may explain the improper lease classifications and
unrecorded obligations identified in the 2003 review. Due to staff
changes at the agency in past years, we were not able to determine
why the budget scoring process was inconsistent and informal from
1996 to 2003.
In 2003, NIH attempted to address its problems in complying with
scorekeeping guidelines by developing the Leasing Management and
Oversight Program (LeMOP), a new multistep leasing process that
includes budget scoring. LeMOP is a means for NIH to exercise
stronger oversight in the leasing process than it had done
previously. The process consists of a business case12 that goes
through the following five critical decision points:
1. Initial approval that there is a justifiable need,
2. Approval of a general strategy on how the need
will be met,
3. Approval of a detailed strategy for meeting the
need,
4. Signing of the lease and obligation of the funds,
and
5. Documentation that the agency has reviewed the
action and the space requirement is being met.
As part of the third decision point, the Office of Business
Systems and Finance (OBSF) uses the budget scoring process for
leases that it developed during NIH's 2003 review to conduct an
independent test of the planned lease contract against OMB's
budget scorekeeping requirements. The test is based on estimates
of the lease rate, the lease term, and other factors. As part of
the fourth decision point, OBSF tests the final lease price
against OMB scoring requirements to determine if the proposal
conforms to applicable rules for budget scoring. In effect, the
process establishes a specific requirement that ensures that NIH
leases undergo budget scoring.
In addition to implementing LeMOP, NIH corrected its improper
classification of the eight operating leases identified in the
2003 review. Two of these leases were reclassified as capital
leases, and the remaining six were renegotiated by eliminating the
option-to-renew clauses from the lease so that they could properly
qualify as operating leases. By deleting the option-to-renew
clauses, NIH reduced the terms of the leases, which impacted
budget scoring. This allowed the leases to meet the scoring
criteria for an operating lease-that the present value of the
minimum lease payments over the life of the lease not exceed 90
percent of the fair market value of the asset at the beginning of
the lease term. Leases exceeding this 90 percent level are to be
identified as capital leases.
As a final measure in response to the 2003 review, NIH sought
HHS's advice on whether it had $565 million in unrecorded
obligations that violated the Antideficiency Act. The unrecorded
obligations occurred because NIH scored its operating leases
without cancellation clauses similar to GSA-that is, it scored
only the budget authority that was needed to cover the annual
lease payment.13 This was done instead of following scorekeeping
guidance for an operating lease for agencies other than GSA-that
is, budget authority is required for the estimated total payment
expected to arise under the full term of the contract or, if the
contract includes a cancellation clause, for an amount sufficient
to cover the lease payments for the first year plus an amount
sufficient to cover the costs associated with the cancellation
clause.
NIH asked HHS whether it thought that the $565 million in
unrecorded obligations was an Antideficiency Act violation. This
act states that an officer or employee of the United States is
prohibited from making expenditures or incurring obligations in
advance of available appropriations unless otherwise authorized by
law. HHS stated that it did not believe the potential $565 million
in unrecorded obligations from scoring operating leases to be
Antideficiency Act violations.
We concluded that no Antideficiency Act violation exists. Under
the Federal Property and Administrative Services Act of 1949, as
amended (Property Act), GSA is authorized to enter into a lease
agreement for a term of up to 20 years to accommodate the federal
government.14 In addition, GSA is authorized under the Property
Act to delegate to the head of another federal agency most of its
authorities, which includes leasing authority.15 When GSA
delegated its leasing authority to the Secretary of HHS, who then
redelegated this authority to NIH, the GSA leasing delegation
signed by the Administrator specifically stated, "I hereby
delegate authority to the heads of all federal agencies to perform
all functions related to the leasing of general purpose space for
a term of up to 20 years regardless of geographic location."
GSA has specific statutory authority to obligate funds in advance
of available appropriations. This authority provides that, when
entering into multiyear leases, "the obligation of the amount for
a lease is limited to the current fiscal year for which payments
are due without regard to the Antideficiency Act."16 Accordingly,
GSA is directed by law to obligate funds for multiyear leases one
year at a time, and it is exempt from the general prohibition in
the Antideficiency Act against obligating the government in
advance of appropriations for GSA leases. Since GSA delegated all
of its leasing authorities through HHS to NIH, the provision in
the Property Act relating to the obligation of multiyear leases
also applies to NIH. This delegation authorizes NIH to enter into
multiyear leases without recording the entire amount of the lease
in the first year. Therefore, the fact that NIH entered into
multiyear leases without having an appropriation for the entire
amount of each lease did not constitute a violation of the
Antideficiency Act.
GSA is drafting a modification to its guidance for delegated
leasing authority which, according to a GSA official, will clarify
that agencies with delegated leasing authority can score operating
leases in the same manner as GSA does. GSA and agencies with
delegated leasing authority are expected to continue to score
capital leases according to OMB's requirements.
NIH Has Improved Its Lease Scoring Process and Believes that Its
Unrecorded Obligations for Operating Leases Do Not Violate the
Antideficiency Act
As part of its leasing process, NIH has established decision
points for identifying leases whose costs exceed a legislatively
established threshold and for which a prospectus should be
submitted for congressional review and approval prior to
finalizing contracts. In addition, all alterations to leased
buildings are reviewed by an NIH leasing official. These changes
should ensure that NIH identifies leases that need to be submitted
for review. However, five prior leases that should have been
submitted for review still remain unreported.
The Public Buildings Act of 1959, as amended, provides for GSA to
submit a prospectus for review by the appropriate Senate and House
authorizing committees when the cost of a proposed construction,
lease, or alteration project exceeds the legislatively established
dollar threshold for leases or alterations to leased buildings,
which is indexed and revised each year. For an agency with
delegated leasing authority, GSA, working in consultation with the
agency, prepares a prospectus for any lease involving a net annual
rental-excluding services and utilities-in excess of the
prospectus threshold. For alterations to leased buildings, the
prospectus threshold is one-half of the lease prospectus
threshold. After the prospectus is prepared, GSA submits it for
approval to the appropriate congressional committees.
To address previous problems with inconsistent and informal
implementation of prospectus guidance, NIH has incorporated into
its leasing process several decision points for identifying any
leases for which a congressionally approved prospectus should be
submitted. As part of the third decision point of LeMOP-approval
of a detailed strategy for meeting the need-OBSF will use the
prospectus analysis formula, which it developed during NIH's 2003
review of all leases, to conduct an independent test of the
planned lease contract against the annual prospectus threshold.
NIH plans to have GSA issue any lease that exceeds the prospectus
limit, with NIH providing the appropriate information and support.
As part of the fourth decision point-signing of the lease and
obligation of the funds, OBSF will test the final lease price
against prospectus thresholds to determine if the proposal
conforms to applicable rules for the prospectus process. This
prevents the agency from issuing a prospectus-level lease without
a congressionally approved prospectus, even though the lease was
initially identified as nonprospectus as part of the third
decision point.
Furthermore, according to NIH's Office of Acquisitions, ORF, it is
now responsible for ensuring that the contracting for alterations
to leased buildings does not exceed that prospectus threshold. To
prevent any delay in the process, reviews of an alteration project
in a leased building begin as early as the concept stage to
determine whether a prospectus is required. The Office of
Acquisitions also takes into account all other approved
alterations to the leased building for the given year to ensure
that the total cost of all alterations to that leased building
does not exceed the prospectus threshold.
As part of the 2003 review of all its leases, NIH identified five
leases that had not been sent to the appropriate congressional
committees for approval, under the Public Buildings Act of 1959,
as amended.17 GSA is to provide a lease prospectus to the
appropriate congressional committees for approval prior to signing
a lease. This process involves agencies with delegated leasing
authority, which must identify prospectus level leases to GSA for
submission. According to the Director of the Office of
Acquisitions, NIH had not established a formal prospectus analysis
for leases or alterations to leased buildings from 1996 to 2003.
As a result, NIH did not notify GSA of the five prior
prospectus-level leases that should have been submitted to the
committees. While there is no legal penalty for not following the
congressional prospectus process, failure to do so hinders the
ability of the appropriate congressional committees to fulfill
their oversight responsibilities for all prospectus-level leases.
Although these five leases have been in effect for several years,
GSA officials told us that it would still be appropriate for NIH
to work with GSA to notify the committees of their existence. The
officials noted, for example, a past instance where GSA reported,
after the fact, a prospectus level lease that was issued without
approval of the appropriate committees. NIH officials stated that
they want to clear up any unresolved issues concerning their
prospectus and budget scoring problems.
Conclusions
NIH has taken actions to formalize its processes of lease scoring
and prospectus analysis by developing and implementing LeMOP, its
new leasing process. The specific decision points in this process
should address the problems NIH had with consistently complying
with OMB's scorekeeping guidelines and the congressional
prospectus process. Because only one lease has been issued under
the new process, it is too early to assess the effectiveness of
NIH's implementation of LeMOP.
An issue remains with five prior leases that were not submitted to
the appropriate congressional committees for review under the
Public Buildings Act of 1959, as amended. Although these leases
have been in effect for several years, it is nonetheless important
that information on them be submitted to the appropriate
committees in order to maintain NIH's accountability to Congress
in this area and allow the committees to exercise their oversight
responsibilities. NIH has expressed its desire to resolve any
remaining issues concerning its prospectus and budget scoring
processes.
Recommendation for Executive Action
We are recommending that the Director of NIH, using GSA as the
proper channel, report to the appropriate congressional committees
the five previous NIH prospectus-level leases that did not follow
the congressional prospectus process.
Agency Comments
We provided a draft of this report to NIH, HHS and GSA for
comment. In response, HHS provided written comments for itself and
NIH. HHS concurred with our findings and recommendation and
offered some technical comments that we have incorporated in this
report. HHS stated that, as a matter of policy, it does not object
to voluntarily complying with the GSA prospectus requirements for
the five leases dealt with in the draft report. A letter from HHS
commenting on our report is included as appendix I. GSA informed
us orally that they had no comments.
As agreed with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter. At that time, we will
send copies of this report to the appropriate congressional
committees, the Director of the National Institutes of Health, the
Secretary of Health and Human Services, the Administrator of the
General Services Administration and the Director of the Office of
Management and Budget. We will make copies available to others
upon request. In addition, this report will be available at no
cost on the GAO Web site at http://www.gao.gov .
If you have any questions about this report, please contact me at
(202) 512-2834 or [email protected] . Contact points for our
Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix II.
Sincerely yours,
Mark L. Goldstein Director, Physical Infrastructure Issues
Appendix I: Comments from the Department of Health and Human Services
Appendix II: GAO Contact and Staff Acknowledgments
GAO Contact
Mark L. Goldstein (202) 512-2834 or [email protected]
Staff Acknowledgments
In addition to those named above, John Finedore, Tom Keightley,
Susan Michal-Smith, Chris Bonham and Tamera Dorland made key
contributions to this report.
GAO�s Mission
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in
meeting its constitutional responsibilities and to help improve
the performance and accountability of the federal government for
the American people. GAO examines the use of public funds;
evaluates federal programs and policies; and provides analyses,
recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
The fastest and easiest way to obtain copies of GAO documents at
no cost is through GAO's Web site ( www.gao.gov ). Each weekday,
GAO posts newly released reports, testimony, and correspondence on
its Web site. To have GAO e-mail you a list of newly posted
products every afternoon, go to www.gao.gov and select "Subscribe
to Updates."
Order by Mail or Phone
The first copy of each printed report is free. Additional copies
are $2 each. A check or money order should be made out to the
Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are
discounted 25 percent. Orders should be sent to:
U.S. Government Accountability Office 441 G Street NW, Room LM
Washington, D.C. 20548
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax:
(202) 512-6061
To Report Fraud, Waste, and Abuse in Federal Programs
Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail:
[email protected] Automated answering system: (800) 424-5454 or
(202) 512-7470
Congressional Relations
Gloria Jarmon, Managing Director, [email protected] (202) 512-4400
U.S. Government Accountability Office, 441 G Street NW, Room 7125
Washington, D.C. 20548
Public Affairs
Paul Anderson, Managing Director, [email protected] (202)
512-4800 U.S. Government Accountability Office, 441 G Street NW,
Room 7149 Washington, D.C. 20548
231 U.S.C. S: 1501.
3The Antideficiency Act prohibits an officer or employee of the United
States from making expenditures or incurring obligations before
appropriations become available, unless otherwise authorized by law. 31
U.S.C. S: 1341.
4A prospectus is a justification for a proposed construction, lease, or
alteration project (which includes an alteration to a leased building). A
prospectus for a proposed lease is submitted when the cost exceeds a
legislatively established threshold, which is $2.41 million for fiscal
year 2006, and includes information on the project's size, cost, location,
and other features. For alterations to leased buildings, the prospectus
threshold is one half the prospectus threshold for a lease. An agency with
delegated leasing authority analyzes each lease to determine whether it
needs a prospectus. GSA then prepares a prospectus in consultation with
the agency and submits the prospectus to the appropriate House and Senate
authorizing committees.
540 U.S.C. S: 3307.
6An operating lease is a lease that meets the six criteria listed in the
scorekeeping guidelines in OMB Circular A-11 appendix A. A capital lease
is any lease other than a lease purchase that does not meet all six
criteria.
7One of the 59 leases was issued in January 2006, this report discusses
the remaining 58 leases that were in NIH's 2003 review of all its leases;
therefore, we refer to only 58 leases in this report. In addition, NIH has
16 active leases that were contracted for through GSA.
8The conditions included, but were not limited to, the Competition in
Contracting Act, Executive Order 12072, Executive Order 13006, Davis Bacon
Act, the GSA Acquisition Regulations, and GSA Federal Property Management
Regulations (FPMR). When the delegation was issued to NIH in 1996, the
FPMR stated that delegated leasing authority shall be exercised in
accordance with the Budget Enforcement Act of 1990 and OMB Bulletin 91-02,
Part B (41 C.F.R. S: 101.18.104-1). In 2003, GSA revised its regulations
to provide that all agencies are required to follow the budget
scorekeeping guidelines and OMB's requirements for leases, capital leases,
and lease purchases identified in appendixes A and B of OMB Circular A-11.
(41 C.F.R. S: 102-73.130).
9We previously reported that the budget scorekeeping rules favor leasing
and that one option for scorekeeping would be to recognize that many
operating leases are used for long-term needs and should be treated on the
same basis as purchases. This would entail scoring up front the present
value of lease payments covering the same time period used to analyze
ownership options. Applying the principle of up-front full recognition of
long-term costs to all options for satisfying long-term space
needs-purchases, lease purchases, or operating leases-is more likely to
result in selecting a more cost-effective alternative than using the
current scoring rules. GAO, Budget Scoring: Budget Scoring Affects Some
Lease Terms but Full Extent Is Uncertain, GAO-01-929 (Washington D.C.:
Aug. 31, 2001).
10The six criteria are (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 asset is a
general purpose asset, it is not for a special purpose of the government,
and it is not built to unique specifications of the government lessee; (5)
there is a private sector market for the asset; and (6) 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.
11According to scorekeeping guidelines, for funds that are self-insuring
under existing authority, only the amount of budget authority needed to
cover the annual lease payment is required to be scored. In November 2005,
OMB clarified its requirements by stating that the only funds that are
considered self-insuring are certain revolving funds in GSA.
12The business case consists of the need for the lease action, the reason
it cannot be met within current space, the Space Justification Document,
and a general estimate of the range of life-cycle costs.
13As previously noted, GSA is considered by OMB to be self-insuring and,
as such, is required to score only the amount of budget authority needed
to cover annual lease payments for an operating lease.
1440 U.S.C. S: 585.
1540 U.S.C. S: 121 provides that the GSA Administrator may delegate
authority under the act except for the (1) authority to prescribe
regulations on matters of policy applying to executive agencies, (2) the
authority to transfer functions and reallocated amounts from one component
of GSA to another under certain situations; and (3) other authority for
which delegation is prohibited under the act. The Property Act does not
prohibit the delegation of leasing authority.
1640 U.S.C. S: 585.
17GSA informed us that several prospectus level leases were submitted to
the appropriate committees and were approved and issued by GSA for NIH
space between 1996 and 2005. NIH's 2003 review of all leases did not
include reviewing alterations to leased buildings.
(543142)
www.gao.gov/cgi-bin/getrpt? GAO-06-918 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Mark Goldstein at (202) 512-2834.
Highlights of GAO-06-918 , a report to the Chairman, Committee on Energy
and Commerce, House of Representatives
September 2006
FEDERAL REAL PROPERTY
NIH Has Improved Its Leasing Process, but Needs to Provide Congress with
Information on Some Leases
The National Institutes of Health (NIH) is the nation's primary medical
and behavioral research agency. NIH's need for leased space has more than
doubled since 1996 to about 3.9 million square feet in 2005. In 1996,
General Services Administration delegated leasing authority to NIH that
includes performing budget scoring and prospectus analysis. In light of
NIH's increased use of leased space, GAO was asked to address two issues:
(1) Is NIH complying with budget scorekeeping guidelines and Office of
Management and Budget's (OMB) requirements for implementing the guidelines
to determine if a lease should be classified as operating or capital and
ensure that no violations of the Antideficiency Act occur because of
improper budget scorekeeping? and (2) Is NIH complying with the
congressional prospectus process for both leases and alterations to leased
buildings?
To address these issues we interviewed leasing and financial officials,
reviewed laws and reviewed budget scoring and prospectus analysis of 59
leases.
What GAO Recommends
GAO recommends that the Director of NIH, using GSA as the proper channel,
report to the appropriate congressional committees five previous NIH
prospectus-level leases that did not follow the congressional prospectus
process. In commenting on our report NIH concurred with our
recommendation.
NIH has implemented a formal leasing process that, if carried out
effectively, should comply with budget scorekeeping guidelines and OMB's
requirements for classifying operating and capital leases. This process
should ensure that no Antideficiency Act violations occur due to leasing.
The agency's new leasing process addresses previous problems with
inconsistent and informal implementation of the guidelines and
requirements by properly identifying operating and capital leases and
properly recording lease obligations for budget scoring purposes. In
October 2005, the U. S. Department of Health and Human Services expressed
the belief that the potential $565 million in unrecorded obligations from
50 active multiyear NIH leases were not Antideficiency Act violations. We
agree that no Antideficiency Act violations exist because the GSA
delegation of leasing authority included specific authority that directed
NIH to obligate funds for multiyear leases, one year at a time, and that
such actions were exempt from the Antideficiency Act. GSA is also
modifying its guidance for delegated leasing authority, which would make
it clear that agencies with delegated leasing authority can score
operating leases in the same manner as GSA. The scoring process for
capital leases would remain unchanged.
As part of its leasing process, NIH has also established decision points
for identifying any leases for which a prospectus should be submitted
through GSA for congressional approval, under the Public Buildings Act of
1959, as amended. This process involves submitting leases and alterations
to leased buildings for approval whose costs exceed a legislatively
established threshold. In addition, NIH has designated the Office of
Acquisitions, Office of Resource Facilities to review prospectus-level
alterations to leased buildings to ensure that the contracting for
alterations to leased buildings does not exceed the prospectus threshold
for alterations to leased buildings. However, NIH has taken no action to
address five prospectus-level leases that were not submitted to the
appropriate congressional committees in past years. While there is no
penalty provided in law for not submitting a prospectus, failure to do so
hinders the ability of the appropriate congressional committees to fulfill
their oversight responsibilities for all prospectus-level leases.
*** End of document. ***