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 [email protected]. 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
NASAï¿½s 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.

NASAï¿½s 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.

NASAï¿½s 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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References

Visible links
1. http://www.gao.gov/cgi-bin/getrpt?GAO-04-119T
2. http://www.gao.gov/cgi-bin/getrpt?GAO-03-1011
3. http://www.gao.gov/cgi-bin/getrpt?GAO-05-55
4. http://www.gao.gov/cgi-bin/getrpt?GAO-04-119T
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