    NASA: Enhanced Use Leasing Program Needs Additional Controls
    (01-MAR-07, GAO-07-306R).

    In 2003, the National Aeronautics and Space Administration (NASA)
    was authorized to demonstrate enhanced use leasing (EUL) at two
    centers, allowing the agency to retain the proceeds from leasing
    out underutilized real property and to accept in-kind
    consideration in lieu of cash for rent. NASA selected Ames
    Research Center and Kennedy Space Center for the demonstration
    program. The agency had requested that Congress extend this
    authority to additional NASA centers during formulation of the
    NASA Authorization Act of 2005. NASA's request was not granted.
    Instead, Section 710 of the NASA Authorization Act of 2005
    (Public Law 109-155) directed GAO to review NASA's EUL program.
    We examined (1) the financial impact of the EUL authority on NASA
    and whether EUL revenue and other financial benefits would have
    been realized without the authority, (2) NASA's use of the
    authority and whether the arrangements made under the authority
    would have been made in the absence of the authority, and (3)
    what controls are in place to ensure accountability and
    transparency and to protect the government. The act also directed
    GAO to report back to the Congress by December 30, 2006. We
    presented our preliminary findings to Congress in December 2006.
    Because of Congress's interest in how NASA is implementing its
    EUL authority, we are enclosing the full briefing that supported
    that December presentation with this report, along with a summary
    of our findings and conclusions.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-306R
        ACCNO:   A66384
      TITLE:     NASA: Enhanced Use Leasing Program Needs Additional
    Controls
         DATE:   03/01/2007
      SUBJECT:   Accountability
    	     Assets
    	     Facility repairs
    	     Federal facilities
    	     Federal property
    	     Internal controls
    	     Lessons learned
    	     Program evaluation
    	     Real estate leases
    	     Real property
    	     Research and development facilities
    	     Transparency

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    GAO-07-306R

    March 1, 2007

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

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

    Subject: NASA: Enhanced Use Leasing Program Needs Additional Controls

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

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

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

    Background

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

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

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

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

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

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

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

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

    Results in Brief

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

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

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

    ^4 [4]GAO-04-119T .

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

    Conclusion

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

    Recommendation for Executive Action

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

               o criteria for determining that EUL represents the best economic
               value for the government, compared with other options, such as
               federal financing through appropriations or sale of the property;
               o measures of effectiveness for the EUL program, such as
               reductions in the square footage of underutilized property and in
               the dollar amount of deferred maintenance; and
               o accounting controls and processes to ensure accountability, such
               as an

                            o accounting system for tracking the value of in-kind
                            consideration and an
                            o audit trail and documentation to readily support
                            financial transactions.

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

               o identifying and quantifying the value of in-kind consideration
               arrangements and expenditures of EUL revenue in its annual EUL
               reports to the Congress, and
               o reporting the availability and use of EUL funds in the agency's
               operating plans.

    Agency Comments and Our Evaluation

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

    Scope and Methodology

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

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

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

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

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

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

    Allen Li
    Director
    Acquisition and Sourcing Management

    Enclosures

    120620

    Enclosure I: Comments from the National Aeronautics and Space
    Administration

    Enclosure II:  Briefing for Congressional Staff
    NASA�s Enhanced Use Leasing Demonstration Program

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

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

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

    Briefing Structure

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

    Why GAO Did This Study

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

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

    Related GAO Reports

    Real Property is a High-Risk Area

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

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

    Alternative Financing Has Been Used by Other Agencies

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

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

    Related GAO Reports

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

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

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

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

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

    Source: NASA data, GAO analysis.

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

    Findings

    NASA Has Realized about $1.3 Million in EUL Benefits

    NASA has realized about $1.3 million in EUL-related financial benefits
    since beginning the EUL demonstration--most of which would not have been
    realized by NASA without EUL authority. However, without EUL
    authority,some of these financial benefits could have accrued to the
    federal government.

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

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

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

    NASA�s EUL Authority

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

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

    NASA Uses EUL to Develop Underutilized Property

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

               o Ames has entered into over 50 EUL agreements, leasing out
               underutilized office space and unique research and development
               facilities. Much of the space is located in the historic portion
               of the old Moffett Field Naval Base.

               o Kennedy has entered into 8 EUL agreements for ground leases for
               press sites and telecommunication equipment.

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

    NASA would have developed some of the properties leased out under EUL
    using other authorities.

               o Ames' research park, according to Ames officials, was first
               approved for development with existing authorities during the
               Clinton administration.

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

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

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

    SATURN V Concession at Kennedy Space Center

    Source: GAO

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

               o Retaining revenue exceeding costs and maintaining no-year
               capital accounts motivate the agency to invest the time necessary
               to establish the arrangement.

                            o NASA implemented an aggressive plan at Ames to
                            vacate NASA employees from one historic building to
                            lease the space to EUL tenants and increase the EUL
                            revenue stream. According to agency officials, a
                            second objective of vacating the employees was to
                            consolidate them within Ames' fenced area to improve
                            security and efficiency.
                            o NASA used EUL funds to improve the historic
                            building, making it more attractive to potential EUL
                            tenants.

               o Accepting in-kind consideration in lieu of cash for payment
               provides flexibility in negotiating agreements. For example,

                            o Accepting building improvements in lieu of cash
                            rent allowed NASA to negotiate some agreements. In
                            these instances, NASA gets an improved building and
                            the tenant gets tailored space at the same cost.
                            o Accepting services in lieu of cash rent allowed
                            NASA to receive needed services and to retain
                            ownership of a unique asset--the Animal Care
                            Facility--with no cash outlay.

    Key Elements of Other NASA Real Property Authorities

    Concession Authority

    This authorizes agreements for outreach and visitor centers. The
    concessionaire is allowed to charg admission fees and to make with the
    capital invested and the obligations assumed.

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

    Space Act--Other Transactions

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

    National Historic Preservation Act

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

    Centers' Implementation Models Differ

    Ames Research Center

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

    Kennedy Space Center

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

    NASA�s EUL Program Needs Additional Controls

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

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

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

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

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

               o We found financial management weaknesses that hamper
               accountability.

                            o The agency has no accounting system for tracking
                            and reporting the value of in-kind consideration.
                            o In some instances, we could not trace financial
                            data to source documents and financial data were not
                            readily available.

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

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

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

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

    Elements of Accountability and Transparency

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

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

    Appendix

    Scope and Methodology

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

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

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

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

    Contributors

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

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