INDEX

[NOTE 1: Summary of Significant Accounting Policies
2](#summary-of-significant-accounting-policies)

[A. Reporting Entity 2](#reporting-entity)

[B. Basis of Accounting and Presentation
2](#basis-of-accounting-and-presentation)

[C. Fund Balance with Treasury 3](#fund-balance-with-treasury)

[D. Accounts Receivable 3](#accounts-receivable)

[E. Investments 3](#investments)

[F. Trust and Revolving Funds 3](#trust-and-revolving-funds)

[G. Recognition of Financing Sources
3](#recognition-of-financing-sources)

[H. Operating Materials and Supplies
4](#operating-materials-and-supplies)

[I. Property and Equipment 4](#property-and-equipment)

[J. AOC Heritage Collections 4](#aoc-heritage-collections)

[K. Liabilities 4](#liabilities)

[L. Personnel Compensation and Benefits
4](#personnel-compensation-and-benefits)

[M. Contingencies 5](#contingencies)

[N. Statement of Net Cost 5](#statement-of-net-cost)

[O. Reclassifications 6](#reclassifications)

[NOTE 2: Fund Balance with Treasury 6](#fund-balance-with-treasury-1)

[NOTE 3: Investments 6](#investments-1)

[NOTE 4: Accounts Receivable 7](#accounts-receivable-1)

[NOTE 5: Property and Equipment 7](#property-and-equipment-1)

[NOTE 6: Other Assets 8](#other-assets)

[NOTE 7: Liabilities Not Covered by Budgetary Resources
8](#liabilities-not-covered-by-budgetary-resources)

[NOTE 8: Payroll and Liabilities 9](#payroll-and-liabilities)

[NOTE 9: Debt Held by the Public 9](#debt-held-by-the-public)

[NOTE 10: Contingent and Environmental Liabilities
9](#__RefHeading___Toc157927551)

[NOTE 11: Imputed Financing 11](#imputed-financing)

[NOTE 12: Leases 12](#leases)

[NOTE 13: Other Liabilities 13](#other-liabilities)

[NOTE 14: Net Cost of Operations 13](#net-cost-of-operations)

[NOTE 15: Explanation of the Relationship Between Liabilities Not
Covered by Budgetary Resources and the Change in Components Requiring or
Generating Resources in Future Periods
13](#explanation-of-the-relationship-between-liabilities-not-covered-by-budgetary-resources-and-the-change-in-components-requiring-or-generating-resources-in-future-periods)

[NOTE 16: Deferred Maintenance 14](#deferred-maintenance)

# Summary of Significant Accounting Policies

## Reporting Entity 

The Architect of the Capitol (AOC) is an office within the legislative
branch of the federal government. Initially authorized by Congress to
provide "suitable buildings and accommodations for the Congress of the
United States," our role has evolved to include responsibility for the
maintenance, operation, development, and preservation of the Capitol
Building, Senate Office Buildings, House Office Buildings, Library of
Congress Buildings and Grounds, Capitol Power Plant, U.S. Botanic
Garden, Capitol Police Buildings and Grounds, Supreme Court Building and
Grounds, and all of the grounds encompassing the Capitol campus.

We are also responsible for

-   providing facilities management services for the Senate Restaurants,

-   construction of the Capitol Visitor Center,

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-   arrangements for the Presidential Inaugural and other ceremonies
    held on the Capitol Grounds, and

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-   providing steam and chilled water to the Supreme Court and Thurgood
    Marshall Federal Judiciary Buildings, Union Station, and the Folger
    Library, as well as steam only to the Government Printing Office and
    the Postal Square building.

Non-entity activities include

-   a portion of steam and chilled water,

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-   flag-flying fees, and

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-   provision of palm trees for rent.

Upon receipt, funds for these activities are not available for our use.
The only non-entity asset is in accounts receivable.

##  Basis of Accounting and Presentation 

Our Balance Sheet has been prepared in conformity with U.S. generally
accepted accounting principles (GAAP) as promulgated by the Federal
Accounting Standards Advisory Board (FASAB). The American Institute of
Certified Public Accountants (AICPA) recognizes FASAB standards as GAAP
for federal reporting entities. These principles differ from budgetary
reporting principles. The differences relate primarily to the
capitalization and depreciation of property and equipment as well as the
recognition of other long-term assets and liabilities.

##  {#section .unnumbered}

GAAP require us to make certain estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets,
liabilities (including contingent liabilities), and the reported amounts
of revenue and expenses during the reporting period. Actual results may
differ from our estimates.

For financial reporting purposes, we have issued AOC Order No.32-02
which adopts GAAP for financial reporting and internal controls in a
manner consistent for a legislative office. As a legislative branch
office, we are not required to follow the accounting principles
established by the Comptroller General under 31 U.S.C. 3511 or the
standards promulgated by FASAB.

We have not adopted the Federal Managers Financial Integrity Act, the
Federal Financial Management Improvement Act of 1996, or the Government
Performance and Results Act, as these standards apply only to executive
branch agencies. We are committed to using these Acts as "best
practices" and are incorporating them into our financial management
practices as appropriate.

## Fund Balance with Treasury 

We maintain all cash accounts, with the exception of investments
described in Note 3, with the U.S. Department of Treasury (Treasury).
The Fund Balance with Treasury account represents the unexpended
balances of appropriation accounts, trust accounts, and revolving funds.
Cash receipts and disbursements are processed by Treasury, and our
records are reconciled with those accounts on a regular basis.

## Accounts Receivable

Accounts Receivable includes reimbursement for supplying entities on
Capitol Hill with steam and chilled water to heat and cool their
facilities (*see Note 4*). Per annual appropriation, we provide steam
and chilled water to the Folger Library, Union Station, Supreme Court
and Thurgood Marshall Federal Judiciary Buildings, as well as steam only
to the Government Printing Office and the Postal Square building. We are
legislatively provided the ability to collect a pre-determined amount to
recover the cost of supplying these services and record these amounts as
offsetting collections. Any amount collected over the pre-determined
amount is credited to the Treasury's Miscellaneous Receipt Fund and is a
non-entity asset.

## Investments

As a result of financing the construction of the Thurgood Marshall
Federal Judiciary Building, we have funds invested by a trustee *(see
Note 3)*. These investments are recorded at current market value.

## Trust and Revolving Funds 

We have stewardship responsibility for three revolving funds that are
included in the balance sheet. The revolving funds consist of the House
of Representatives Wellness Center Fund, the Senate Health and Fitness
Facility Fund, and the Judiciary Office Building Development and
Operations Fund. Preservation and maintenance of the House of
Representatives Wellness Center are paid by members' dues. Proceeds from
the Senate recycling program are used to pay for the preservation and
maintenance of the Senate Health and Fitness Facility. The Judiciary
Office Building Development and Operations Fund is used to record
transactions related to the Thurgood Marshall Federal Judiciary Building
(TMFJB) *(see Note 3).*

We also administer the National Garden Trust Fund, subject to the
direction of the Joint Committee on the Library (of Congress). We are
authorized to accept gifts or bequests of money, plant material, and
other property on behalf of the Botanic Garden. Gifts of money are
deposited into the National Garden Trust Fund. We can also dispose of,
utilize, obligate, expend, disburse, and administer such gifts for the
benefit of the Botanic Garden, including, among other things, the
carrying out of any programs, duties, or functions of the Botanic
Garden, and for constructing, equipping, and maintaining the National
Garden (*see Note 3*).

##  {#section-1 .unnumbered}

## Recognition of Financing Sources 

We receive funding to support our programs through appropriations
authorized by Congress. Funding for our operating and capital
expenditures is received as annual, multi-year, and no-year
appropriations. The appropriations we receive are

-   Botanic Garden,

-   Capitol Building,

-   Capitol Grounds,

-   Capitol Police Buildings and Grounds,

-   Capitol Power Plant,

-   Capitol Visitor Center,

-   Congressional Cemetery,

-   General Administration,

-   House Office Buildings,

-   Library Buildings and Grounds, and

-   Senate Office Buildings.

## Operating Materials and Supplies 

Our materials and supplies consist of tangible personal property
consumed during normal operations. Per Statement of Federal Financial
Accounting Standard (SFFAS) No. 3, "Inventory and Related Property,"
operating materials and supplies are recorded using the purchases
method. The purchases method provides that operating materials and
supplies be expensed when purchased.

Operating materials and supplies are purchased using funds specifically
appropriated to our ten jurisdictions; therefore, the related usage of
those materials and supplies is restricted to those specific
appropriations making the purchases.

## Property and Equipment

We record property and equipment at cost. We depreciate buildings and
equipment over their estimated useful lives, which range from 2 to 40
years, using the straight-line method. All AOC property and equipment is
in our possession. None is held by others *(see Note 5)*.

The following table presents our capitalization thresholds and related
useful lives.

  ------------------------ -------------------- -------------------------
  **Property Type**        **Useful             **Capitalization
                           Life(years)**        Threshold**

  Real Property            40                   \$200,000

  Improvements             20                   \$200,000

  Equipment and Vehicles   2-15                 \$25,000

  Assets under Capital     Shorter of Lease     See related Property Type
  Lease                    Term or Useful Life  
                           of Property Type     

  Intellectual Property    3                    \$1,000,000
  ------------------------ -------------------- -------------------------

The Capitol Building, the Supreme Court Building, and the Senate and
House office buildings, as well as the Library of Congress Jefferson
Building, are considered multi-use heritage assets and are included in
the balance sheet.

## AOC Heritage Collections 

The AOC's collections are classified as "heritage assets." Per SFFAS No.
6, their value is not presented on our balance sheets. Stewardship
information covering the acquisition, use, and preservation of the
collections is contained in the Stewardship Report.

## Liabilities

Liabilities represent the amounts we owe to others for goods or services
received, and amounts owed for progress in contract performance. Because
no liability can be paid without an enacted appropriation, some
liabilities are funded while others are unfunded. For accrued unfunded
annual leave and workers' compensation, appropriations may be enacted to
fund these activities. The Balance Sheet presents the following types of
liabilities:

-   Unfunded actual and actuarial workers' compensation

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-   Accounts payable

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-   Debt held by the public

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-   Annual leave

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-   Capital lease liability

## Personnel Compensation and Benefits

Federal Employee Benefits -The Federal Employees\' Compensation Act
(FECA) provides income and medical cost protection to covered federal
civilian employees injured on the job, employees who have incurred a
work-related occupational disease, and beneficiaries of employees whose
death is attributable to a job-related injury or occupational disease.
The FECA program is administered by the U.S. Department of Labor (DOL),
which initially pays valid claims and subsequently seeks reimbursement
from the federal agencies employing the claimants. The DOL determines
the actuarial liability for claims outstanding at the end of each fiscal
year. This liability includes the estimated future costs of death
benefits, workers\' compensation, and medical and miscellaneous costs
for approved compensation cases *(see Note 8).*

We recognize our share of the cost of providing future pension benefits
to eligible employees over the period that they render the related
services. This amount is considered imputed financing to us *(see Note
11).*

We also recognize a current-period expense for the future cost of
post-retirement health benefits and life insurance for our employees
while they are actively employed. This amount is also considered imputed
financing to us *(see Note 11).*

Annual, and Other Leave - Annual leave is recognized as an expense and a
liability as it is earned. The liability is reduced as leave is taken.
The accrued leave liability is principally long- term in nature. Other
types of leave are expensed when taken and no future liability is
recognized for these amounts (s*ee Note 8*).

## Contingencies

We account for contingencies in accordance with SFFAS No. 5, "Accounting
for Liabilities of the Federal Government." It defines a contingency as
an existing condition, situation, or set of circumstances involving
uncertainty as to the possible gain or loss to an entity that will
ultimately be resolved when one or more future events occur or fail to
occur. We recognize a contingent liability when a past transaction or
event has occurred, a future outflow or other sacrifice of resources is
probable, and the related future outflow is measurable. We have recorded
provisions for losses in relation to the definition of contingent
liabilities documented above (*see Note 10*).

## Statement of Net Cost

The Statement of Net Cost (SONC) is presented in accordance with SFFAS
No. 4, by responsibility segment/jurisdiction. Costs not otherwise
assigned to responsibility segment/jurisdictions are presented as
General Administrative. We have a number of initiatives (cost
accounting, performance-based budgeting, etc.) in process that will
assist us with gathering data in a manner to provide even more
information to our stakeholders. While these initiatives are in various
stages of progress, we believe the responsibility segment/jurisdiction
approach provides information to our stakeholders in a direct and
succinct manner. As our financial reporting processes mature, we plan to
enhance our SONC by linking it to our strategic plan following best
practices seen at other agencies.

The responsibility segments are aggregates of the following funds:

General Administrative

General Administrative

American Disabilities Act

Congressional Cemetery

Capitol Buildings and Capitol Grounds

Capitol Buildings

Capitol Grounds

Capitol Visitor Center

West Central Front

Senate Office Building

Senate Office Building

Senate Health and Fitness

House Office Building

House Office Building

House Wellness Center

Capitol Power Plant

Library of Congress and Grounds

Capitol Police and Grounds

Botanic Garden

Botanic Garden

National Garden

Judiciary Buildings and Grounds

Supreme Court

Thurgood Marshall

Revenues are calculated on a direct cost recovery basis.

## Reclassifications

Reclassifications were made to the presentation of the September 30,
2005 financial statements and footnotes to improve their comparability
with the September 30, 2006 statements and footnotes.

# Fund Balance with Treasury

Our funds with Treasury primarily consist of appropriated funds. We also
have stewardship responsibility for three revolving funds and administer
one trust fund. The balance of these funds as of September 30, 2006 and
2005 is as follows:

A. Fund Balances

  --------------------------------- ------------------ ------------------
  dollars in thousands                                 

  **Fund Type**                     **2006**           **2005**

  Appropriated Funds                \$630,109          \$650,861

  Revolving Funds                   10                 2

  Trust Funds                       2,116              1,776

  **Total**                         **\$632,235**      **\$652,639**
  --------------------------------- ------------------ ------------------

B. Status of Fund Balance with Treasury

We classify our funds with Treasury as obligated, unobligated available,
or unobligated unavailable. Unobligated available balances represent
unexpired appropriations available for incurring new obligations.
Unobligated unavailable balances are expired appropriations no longer
available to incur new obligations. Obligated balances not yet disbursed
include undelivered orders or orders received but not yet paid.

Status of Fund Balance with Treasury as of September 30, 2006 and 2005,
consist of the following:

+---------------------------------+----------------+------------------+
|                                 |                |                  |
+---------------------------------+----------------+------------------+
| dollars in thousands            |                |                  |
+---------------------------------+----------------+------------------+
| **Balance Type**                | **2006**       | **2005**         |
+---------------------------------+----------------+------------------+
| Unobligated Balance             |                |                  |
+---------------------------------+----------------+------------------+
| > Available                     | \$235,600      | \$243,011        |
+---------------------------------+----------------+------------------+
| > Unavailable                   | 34,977         | 32,675           |
+---------------------------------+----------------+------------------+
| Obligated Balance not yet       | 361,658        | 376,953          |
| Disbursed                       |                |                  |
+---------------------------------+----------------+------------------+
| **Total**                       | **\$632,235**  | **\$652,639**    |
+---------------------------------+----------------+------------------+

C. Other information:

As of September 30, 2006, we had the following differences due to
disbursement transactions in-transit:

1)  \$116 was not yet posted to our general ledger, but had been
    reported to Treasury by the National Finance Center, and

2)  \$837K was posted to our general ledger but the Supreme Court had
    not yet reported this to Treasury.

# Investments 

A. Investments with Treasury

The National Garden at the U.S. Botanic Garden was funded privately via
The National Fund for the U.S. Botanic Garden (USBG), a not‑for‑profit
corporation assisting the Architect of the Capitol in raising private
funds pursuant to Public Law 102‑229. This is the first project,
authorized by Congress for construction by the Architect of the Capitol,
which was financed with privately donated funds. Funds were raised by
private citizens, corporations, and garden clubs from across the nation.
We invest the donated funds in government account securities through the
Bureau of Public Debt using their Web‑based application, FedInvest. By
law, the interest earned is credited to the National Garden fund.

The balances at year September 30, 2006 and 2005 are as follows:

  --------------------------------- --------------- ----------------------
  dollars in thousands                              

  **Investments Held With                           
  Treasury**                                        

                                    **2006**        **2005**

  Invested                          \$ 7,084        \$10,192

  Interest                          192             148

  Less: Expended                    (5,884)         (3,256)

  **Total**                         **\$ 1,392**    **\$ 7,084**
  --------------------------------- --------------- ----------------------

**B. Investments held Outside Treasury**

In 1989, we entered into a contractual agreement with Boston Properties
for the construction of the Thurgood Marshall Federal Judiciary
Building. To finance the construction of the building, Shearson Lehman
Hutton, Inc., and Kidder, Peabody, & Co., Inc., issued 30-year Serial
Zero Coupon Certificates of Participation.

The proceeds were received by a trustee, The U.S. Trust Company of NY
(now The Bank of New York), and deposited into two funds, the Project
Fund and the Operating Reserve Fund. The funds are held outside the U.S.
Treasury by the trustee and, at our direction, are invested or
disbursed.

After construction, the remaining amounts were left in trust in the
Project Fund. The fund is used to finance major construction of
improvements, additions, and changes or renovations. The Operating
Reserve Fund is held in reserve for future needs (e.g., roof
replacement, major renovation). The market values of these funds are
listed below:

  -------------------------------------- ---------------- ----------------
  dollars in thousands                                    

  **Investments Held Outside Treasury**                   

  **Fund Type**                          **2006**         **2005**

  Operating Reserve                      \$31,932         \$30,630

  Project                                1,270            1,233

  **Total**                              **\$33,202**     **\$31,863**
  -------------------------------------- ---------------- ----------------

#  Accounts Receivable 

The breakdown of consolidated gross accounts receivable at September 30,
2006 and 2005 is as follows:

  ----------------------------------------- --------------- -------------
  dollars in thousands                                      

  **Accounts Receivable**                                   

  **Receivable Type**                       **2006**        **2005**

  Entity:                                                   

  Intragovernmental                         \$1,413         \$ 20,163

  With the Public                           129             143

  **Total Entity**                          **1,542**       **20,306**

  Non-Entity:                                               

  Intragovernmental                         48              1,306

  With the Public                           10              10

  **Total**                                 **\$1,600**     **\$ 21,622**
  ----------------------------------------- --------------- -------------

Based upon a year-end review, all receivables are deemed collectible.

# Property and Equipment

#  {#section-2 .unnumbered}

We differentiate our property and equipment by distinct categories. The
following represents those categories in further detail.

+-------------------------+-------------+---------------+-------------+
| dollars in thousands    |             |               |             |
+-------------------------+-------------+---------------+-------------+
| **Property and          |             |               |             |
| Equipment - 2006**      |             |               |             |
+-------------------------+-------------+---------------+-------------+
| **Class of Property and | **          | **Accumulated | **Net Book  |
| Equipment**             | Acquisition | D             | Value**     |
|                         | Value**     | epreciation** |             |
+-------------------------+-------------+---------------+-------------+
| Buildings               | \$ 740,615  | \$ 431,339    | \$ 309,276  |
+-------------------------+-------------+---------------+-------------+
| Building Improvements   | 729,105     | 410,564       | 318,541     |
+-------------------------+-------------+---------------+-------------+
| Land                    | 154,823     | \-            | 154,823     |
+-------------------------+-------------+---------------+-------------+
| Land Improvements       | 101,796     | 17,241        | 84,555      |
+-------------------------+-------------+---------------+-------------+
| Capital Leases          |             |               |             |
+-------------------------+-------------+---------------+-------------+
| Real Property           | 62,603      | 18,445        | 44,158      |
+-------------------------+-------------+---------------+-------------+
| Personal Property       | 91          | 91            | \-          |
+-------------------------+-------------+---------------+-------------+
| Leasehold               | 22,387      | 2,593         | 19,794      |
|                         |             |               |             |
| Improvements            |             |               |             |
+-------------------------+-------------+---------------+-------------+
| Equipment Computers,    | 19,741      | 12,903        | 6,838       |
| Hardware and Other      |             |               |             |
+-------------------------+-------------+---------------+-------------+
| Construction            | 677,815     | \-            | 677,815     |
| Work-in-Progress        |             |               |             |
+-------------------------+-------------+---------------+-------------+
| **Total**               | **\$        | **\$          | **\$        |
|                         | 2,508,976** | 893,176**     | 1,615,800** |
+-------------------------+-------------+---------------+-------------+
| dollars in thousands    |             |               |             |
+-------------------------+-------------+---------------+-------------+
| **Property and          |             |               |             |
| Equipment - 2005**      |             |               |             |
+-------------------------+-------------+---------------+-------------+
| **Class of Property and | **          | **Accumulated | **Net Book  |
| Equipment**             | Acquisition | D             | Value**     |
|                         | Value**     | epreciation** |             |
+-------------------------+-------------+---------------+-------------+
| Buildings               | \$ 744,249  | \$ 417,253    | \$ 326,996  |
+-------------------------+-------------+---------------+-------------+
| Building Improvements   | 690,425     | 383,205       | 307,220     |
+-------------------------+-------------+---------------+-------------+
| Land                    | 154,823     | \-            | 154,823     |
+-------------------------+-------------+---------------+-------------+
| Land Improvements       | 78,445      | 12,959        | 65,486      |
+-------------------------+-------------+---------------+-------------+
| Capital Leases          |             |               |             |
+-------------------------+-------------+---------------+-------------+
| Real Property           | 36,281      | 5,458         | 30,823      |
+-------------------------+-------------+---------------+-------------+
| Personal Property       | 8,790       | 8,772         | 18          |
+-------------------------+-------------+---------------+-------------+
| Leasehold               | 9,592       | 762           | 8,830       |
|                         |             |               |             |
| Improvements            |             |               |             |
+-------------------------+-------------+---------------+-------------+
| Equipment Computers,    | 14,725      | 10,790        | 3,935       |
| Hardware and Other      |             |               |             |
+-------------------------+-------------+---------------+-------------+
| Construction            | 531,404     | \-            | 531,404     |
| Work-in-Progress        |             |               |             |
+-------------------------+-------------+---------------+-------------+
| **Total**               | **\$        | **\$          | **\$        |
|                         | 2,268,734** | 839,199**     | 1,429,535** |
+-------------------------+-------------+---------------+-------------+

The educational, artistic, architectural, and historical significance of
the Capitol, Senate, House, Supreme Court, and Jefferson buildings meets
the FASAB criteria for heritage assets. Because these buildings are
currently used for day-to-day business, they are further classified as
multi-use heritage assets. This means we depreciate them in the same
manner as if they were general purpose assets.

We are responsible for reviewing and authorizing all changes to the
buildings and grounds prior to any change occurring.

# Other Assets 

  -------------------------------------- ---------------- ----------------
  dollars in thousands                                    

                                         **2006**         **2005**

  Advances to Others                     \$ 16            \$ 648
  -------------------------------------- ---------------- ----------------

In 2006, Advances to Others consisted of travel advances and the prepaid
TMFJB investment fund fee. In 2005, Advances to Others also included a
prepayment of a subscription service. The timing of payments for the
subscription service was changed in 2006.

# Liabilities Not Covered by Budgetary Resources

The liabilities on our Balance Sheets as of September 30, 2006 and 2005
include liabilities not covered by current budgetary resources. These
liabilities require Congressional action prior to budgetary resources
being provided. Although future appropriations to fund these liabilities
are likely and anticipated, it is not certain that appropriations will
be enacted to fund these liabilities. Liabilities not covered by
budgetary resources generally include accrued annual and compensatory
leave, workers' compensation, debt held by the public, and capital lease
liability. Liabilities not covered by budgetary resources for 2006 and
2005 are as follows:

  --------------------- ------------------------------- ----------------- -----------------
  dollars in thousands                                                    

  **Liabilities**                                       **2006**          **2005**

  Intragovernmental:                                                      

                        Accounts Payable                \$ 363            \$ 3

                        Accrued unfunded workers\'      8,560             8,476
                        compensation                                      

                        Other                           58                1,312

  **Total                                               \$ 8,981          \$ 9,791
  Intragovernmental**                                                     

                                                                          

                        Total liabilities not covered   \$ 300,631        \$288,923
                        by budgetary resources                            

                        Total liabilities covered by    86,184            80,123
                        budgetary resources                               

                        **Total**                       **\$ 386,815**    \$ **369,046**
  --------------------- ------------------------------- ----------------- -----------------

#  {#section-3 .unnumbered}

#  Payroll and Liabilities

The liability for Accrued Annual Leave and Other is comprised of three
accounts: Funded Accrued Payroll (payrolls that have been earned but not
paid), Unfunded Accrued Annual Leave (employee leave that has been
earned but not taken*)* and Unemployment Compensation.

  ------------------------------------ ----------------- ----------------
  dollars in thousands                                   

  **Accrued Annual Leave and Other**                     

  **Accrual Type**                     **2006**          **2005**

  Funded Accrued Payroll               \$6,317           \$ 6,169

  Unfunded Accrued Annual Leave        7,343             7,271

  Unemployment Compensation            29                **-**

  **Total**                            **\$13,689**      **\$ 13,440**
  ------------------------------------ ----------------- ----------------

Workers' Compensation is reported as required by the Federal Employees'
Compensation Act (FECA). The liability is presented in two parts: an
annual accrued liability for billed costs (current portion) and a
long-term, actuarial-based unfunded liability *(see Note 1.L)*.

The actuarial workers' compensation liability for 2006 and 2005 was
calculated using a formula provided by the DOL.

  -------------------------------------- ---------------- ---------------
  dollars in thousands                                    

  **Workers' Compensation**                               

  Type                                   **2006**         **2005**

  Unfunded Annual (current)              \$8,560          \$ 8,476

  Actuarial Unfunded (long- term)        \$46,938         \$ 48,177
  -------------------------------------- ---------------- ---------------

Estimated future costs have been actuarially determined, and they are
regarded as a liability to the public because neither the costs nor
reimbursement have been recognized by DOL. Workers' Compensation is
included in Liabilities not covered by Budgetary Resources, as described
in Note 7.

# Debt Held by the Public 

As of September 30, 2006 and 2005, Debt Held by the Public consists of
the financing obtained for the construction of the Thurgood Marshall
Federal Judiciary Building. The debt consists of 30-year Serial Zero
Coupon Certificates of Participation issued in 1988 worth \$125,391,621
with a maturity value of \$525,515,000. The certificates are amortized
using the effective interest rate of 8.72%. The balance of Debt Held by
the Public is as follows:

+--------------------------------------+----------------+-------------+
| dollars in thousands                 |                |             |
+--------------------------------------+----------------+-------------+
| **Debt Held by the Public**          |                |             |
+--------------------------------------+----------------+-------------+
|                                      | **2006**       | **2005**    |
+--------------------------------------+----------------+-------------+
| Securities                           | \$310,140      | \$327,370   |
+--------------------------------------+----------------+-------------+
| Interest Payable                     | 1,158          | 1,246       |
+--------------------------------------+----------------+-------------+
| Subtotal                             | 311,298        | 328,616     |
+--------------------------------------+----------------+-------------+
| Discount on Securities               | (400,123)      | (400,123)   |
+--------------------------------------+----------------+-------------+
| Less: Amortization of                | 244,992        | 231,236     |
|                                      |                |             |
| Discount                             |                |             |
+--------------------------------------+----------------+-------------+
| Subtotal                             | (155,131)      | (168,887)   |
+--------------------------------------+----------------+-------------+
| **Total**                            | **\$156,167**  | **          |
|                                      |                | \$159,729** |
+--------------------------------------+----------------+-------------+

Various judiciary offices and personnel occupy the Thurgood Marshall
Federal Judiciary Building under an Interagency Agreement between the
AOC and the Administrative Office of the U.S. Courts. Base rent will not
change over the initial 30 years and is set at the amount necessary to
retire the debt at \$17,230,000 annually. Payment of the certificates
will end in August 2024.

Per the language in the certificate agreement, "This Certificate is not
subject to prepayment or acceleration under any circumstance."

# Contingent and Environmental Liabilities 

We conducted a review of contingent liabilities for financial statement
purposes for 2006 and 2005. Based on this review, we recorded a
contingent liability for claims we think it probable we will lose and
for which we can reasonably estimate the amount of an unfavorable
outcome. Our review covered claims arising from contracts, environmental
issues, labor and equal employment opportunity issues, and personal and
property damage. Additionally, management and General Counsel evaluated
the materiality of cases determined to have a reasonably possible chance
of an adverse outcome. None of these cases were determined to meet our
materiality threshold.

[Fort Meade, Maryland]{.underline}

Our review concluded that we are not responsible for the clean-up and
remediation of previous environmental contamination on the approximately
100 acres of land at Fort George G. Meade, Maryland (FGGM), which the
U.S. Army transferred to us. The Army is responsible for the
environmental clean-up of any previous contamination under the
Comprehensive and Environmental Response Compensation and Liability Act
(CERCLA). We understand that the Army is actively monitoring existing
contamination on the entire FGGM site, including the 100 acres
transferred to us, and is pursuing appropriate remediation of this
contamination.

[Capitol Power Plant]{.underline}

The Office of Compliance issued a complaint in February 2006, alleging
that certain unsafe work practices and conditions exist at the Capitol
Power Plant (CPP) utility tunnels. The alleged unsafe work practices and
conditions cited in the complaint pertain to the structural integrity of
concrete in the utility tunnels and tunnel egress and communication
systems.

In addition, in January 2006, the Office of Compliance issued Citations
59 and 60. These citations are not part of the complaint and formal
enforcement action but also address other alleged unsafe work practices
and conditions at the CPP utility tunnels. The unsafe work practices and
conditions alleged by the Office of Compliance in Citation 59 are that
employees working in the utility tunnels are exposed to heat stress
conditions. Citation 60 is discussed below under Environmental Cleanup
Cost Liability.

We are actively seeking solutions to the issues identified by the Office
of Compliance. We intend to pursue settlement discussions with the goal
of coming to a resolution of the issues in the complaint conditioned
upon our budget authority, and logistical, technical and other
limitations outside of our control.

Because the review of estimates is required in the preparation of our
financial statement, our balance sheets reflect a liability of
approximately \$34 million in 2006 and \$31 million in 2005. Management
and General Counsel believe that we have made adequate provision for the
amounts that may become due under the suits, claims, and proceedings we
have discussed here.

[Environmental Cleanup Cost Liability]{.underline}

In January of fiscal year 2006, the Office of Compliance issued Citation
60, addressing certain alleged unsafe work practices and conditions at
the Capitol Power Plant utility tunnels. Since these conditions existed
at the end of 2005 and some of these tunnels have been in place and
functioning since the early 1900's, we booked a liability and a related
prior period adjustment as required by SFFAS 6, par. 105 on our 2005
financial statements. In Citation 60, the Office of Compliance alleges
that the AOC has not adequately monitored Capitol Power Plant employees
for asbestos exposure, provided required information to employees
regarding the presence and location of asbestos in the tunnels, provided
the required notification to employees regarding asbestos‑containing
materials, or adequately maintained the tunnels so they were as free as
practicable from asbestos, and asbestos waste, debris, and dust. Funding
was requested and funds were appropriated by Congress to address the
tunnel issues which is an amount adequate in management's opinion to
comply with the Environmental Protection Agency's guidelines.

# Imputed Financing

In accordance with SFFAS No. 4, "Managerial Cost Accounting," imputed
financing results when an entity receives un-reimbursed services from
other government entities.

Our imputed financing consists of future pension benefits for our
employees that are paid on our behalf by the Office of Personnel
Management, and design elements paid for by the Army Corps of Engineers
to improve building infrastructure campus-wide.

With certain exceptions, employees participate in one of three defined
benefit retirement programs based upon the starting date of their
employment with us: employee and employer contributions are made to the
Civil Service Retirement and Disability Fund (CSRDF), the Civil Service
Retirement Offset, or the Federal Employee Retirement System, all of
which are administered by the Office of Personnel Management. Employees
may also participate in the Thrift Savings Plan, which is a defined
contribution retirement savings and investment plan. Our employees are
authorized to participate in the Thrift Savings Plan by the Federal
Employees Retirement System Act of 1986. The Federal Retirement Thrift
Investment Board administers the Plan.

[Civil Service Retirement System (CSRS)]{.underline}

According to PL 99-335, all employees hired prior to January 1, 1987,
could elect CSRS or CSRS Offset. The CSRS provides a basic annuity and
Medicare coverage. The CSRS fund covers most employees hired prior to
January 1, 1984. The AOC and the employee contribute to Medicare at the
rate prescribed by law. We do not match contributions to the Thrift
Savings Plan for employees who participate in the CSRS.

[Civil Service Retirement System Offset]{.underline}

CSRS Offset generally covers those employees who have had a break in
their CSRS service of more than one year and less than five years by the
end of 1986. The AOC and the employee contribute to Social Security and
Medicare at the rates prescribed by law. We do not match contributions
to the Thrift Savings Plan for employees who participate in the CSRS
Offset.

[Federal Employee Retirement System (FERS)]{.underline}

According to PL 99-335, employees with less than five years of
creditable civilian service as of December 31, 1986, were automatically
converted to FERS. In addition, during certain periods in 1987, 1988,
and 1998, employees hired before January 1, 1984, could choose to
participate in FERS. This system consists of Social Security, a basic
annuity plan, and the Thrift Savings Plan.

The AOC and the employee contribute to Social Security and Medicare at
rates prescribed by law.

In addition, we are required to contribute to the Thrift Savings Plan a
minimum of 1% per year of the basic pay of employees covered by this
system. We also match a voluntary employee contribution up to 3%
dollar-for-dollar, and another 2% is matched 50 cents on the dollar.

Imputed Financing consists of the following:

+-------------------------------------+----------------+--------------+
| dollars in thousands                |                |              |
+-------------------------------------+----------------+--------------+
| **Imputed Financing**               |                |              |
+-------------------------------------+----------------+--------------+
| **Benefit Type**                    | **2006**       | **2005**     |
+-------------------------------------+----------------+--------------+
| CSRS                                | \$ 8,439       | \$ 8,350     |
+-------------------------------------+----------------+--------------+
| CSRS Offset                         | 699            | 685          |
+-------------------------------------+----------------+--------------+
| FERS                                | 14,758         | 11,983       |
+-------------------------------------+----------------+--------------+
| Less: Contributions                 | (18,389)       | (17,381)     |
+-------------------------------------+----------------+--------------+
| Subtotal Pensions                   | 5,507          | 3,637        |
+-------------------------------------+----------------+--------------+
| Health                              | 8,519          | 7,883        |
+-------------------------------------+----------------+--------------+
| Life Insurance                      | 23             | 17           |
+-------------------------------------+----------------+--------------+
| **Total Employee**                  | \$14,049       | \$11,537     |
|                                     |                |              |
| **Benefits**                        |                |              |
+-------------------------------------+----------------+--------------+
| Corps Building Improvements         | 12,538         | 12,364       |
+-------------------------------------+----------------+--------------+
| **Total**                           | **\$26,587**   | **\$23,901** |
+-------------------------------------+----------------+--------------+

# Leases

As of September 30, 2006 and 2005, we were committed to various
noncancelable operating leases primarily covering administrative office
space and storage facilities, motor vehicles, and office equipment. Many
of these leases contain escalation clauses tied to inflationary and tax
increases, and renewal options.

The following is a schedule of the present value of the future minimum
lease payments required by those leases identified as capital leases,
which have initial or remaining noncancelable lease terms in excess of
one year.

[Capital Leases]{.underline}

  ------------------------- --------------- --------------- ---------------
  dollars in thousands                                      

  **Capital Leases**                                        

  Fiscal Year               Real Property   Personal        **Total**
                                            Property        

  2006                      \$ 83           \$ 5            \$ 88

  2007                      5,945           \-              5,945

  2008                      5,979           \-              5,979

  2009                      6,015           \-              6,015

  2010                      6,050           \-              6,050

  2011                      6,086                           6,086

  Thereafter                31,614          \-              31,614

  **Total Future Lease                                      61,777
  Payments**                                                

  Less: Imputed Interest                                    14,024

  **Net Capital Lease                                       **\$ 47,753**
  Liability**                                               
  ------------------------- --------------- --------------- ---------------

[Operating Leases]{.underline}

We currently have leases with the General Services Administration (GSA)
and commercial vendors for office and storage space, plus rentals of
equipment and vehicles.

The aggregate of our future payments due under noncancelable operating
leases and our estimated real property payments to GSA for fiscal year
2007 through fiscal year 2011 is as follows:

  ------------------------ -------------- ---------------- --------------
  dollars in thousands                                     

  **Operating Leases**                                     

  Fiscal Year              Real Property  Personal         **Total**
                                          Property         

  2007                     7,568          51               7,619

  2008                     1,388          41               1,429

  2009                     1,392          41               1,433

  2010                     747            41               788

  2011                     499            41               540

  Thereafter               \-             525              525

  **Total Future Lease                                     **\$ 12,334**
  Payment**                                                
  ------------------------ -------------- ---------------- --------------

#  {#section-4 .unnumbered}

# Other Liabilities 

During fiscal years 2006 and 2005, other liabilities consists of accrued
accounts payable, contract holdbacks, advances from others, and
miscellaneous receipts that are to be forwarded to Treasury (custodial
liabilities). These receipts included, but were not limited to,
flag-flying fees, rent for the Monocle restaurant, and steam and chilled
water. These liabilities are current.

# Net Cost of Operations

Expenses for salaries and related benefits for 2006 and 2005 amounted to
\$150 and \$155.6 million, which was about 38% and 39% of our annual net
cost of operations for both years. Included in the net cost of
operations are imputed federal employee benefit costs of \$14 and \$11.5
million paid by OPM.

Exchange revenue with the public consists of revenues received for
services provided, such as access to the Senate Health and Fitness
Facility, House Wellness Center, steam and chilled water to governmental
and private entities, work performed on reimbursable projects, and
lastly, rent, interest and reimbursement for projects performed related
to the Thurgood Marshall Building.

#  Explanation of the Relationship Between Liabilities Not Covered by Budgetary Resources and the Change in Components Requiring or Generating Resources in Future Periods

Increases in workers compensation, accrued annual leave, and other
liabilities are reported in the Statement of Financing. These changes
represent the decreases in liabilities not covered by budgetary
resources, as reported in Note 7.

  -------------------------------------- ---------------- ----------------
  dollars in thousands                                     

                                         **2006**         **2005**

  Liabilities not covered by budgetary   \$300,631        \$288,923
  resources.                                              

  Less: Liabilities that are not                          
  components of net cost:                                 

  Debt held by the public                156,167          159,729

  Capital leases                         47,753           34,626

  Liabilities not covered by budgetary   92,841           94,568
  resources that are components of net                    
  cost                                                    

  Less: Prior year liabilities that are  96,861           99,453
  not components of current year net                      
  costs                                                   

  Increase in exchange revenue           \-               26
  receivable from the public                              

  Change in Workers' Compensation,       \$(150)          \$(4,859)
  Accrued Annual Leave, and Other                         
  Liabilities, as reported on the                         
  Statement of Financing                                  
  -------------------------------------- ---------------- ----------------

The Components Requiring Resources in Future Periods includes increases
in certain liability

accounts, such as accrued annual leave, that are also included in the
category \"Not Covered by

Budgetary Resources.\" In this instance, the expense is recorded for the
period when the leave is earned and is included as a current period cost
on the Statement of Net Cost.

The Balance Sheet uses proprietary accounts to present the balances for
\"Liabilities Not Covered

by Budgetary Resources\". An increase in the annual leave liability
increases the unfunded liability on the Balance Sheet and the expenses
on the Statement of Net Cost. The increase is not included in the
Statement of Budgetary Resources since the liability will be paid from
future resources. As a result, the Statement of Financing reports
\"Components Requiring Resources in Future Periods\" which includes
items such as accrued annual leave to reconcile budgetary resources to
net cost.

# Deferred Maintenance

Identifying needed "Deferred Maintenance" and "Capital Renewal" projects
is a primary objective of Facility Condition Assessments (FCA's).
Included in the FCA analysis is a highly technical but objective
determination of when a work element needs to be accomplished. For some
systems and building components, the extent and quality of maintenance
directly affects life expectancy.

We have completed FCA's on nearly all of our buildings. The data
gathering for these assessments was performed using methodologies
including:

-   Physical Surveys of the subject space

-   Review of recent plans, reports or studies

-   Interviews with current facility managers and staff

-   Review of existing data from project management tools

Standards are provided for evaluating facility condition. These
standards include (but are not limited to):

-   Overview and summary condition descriptions for each facility

-   Suggested project schedule for performance of deferred maintenance
    or capital renewal based on condition of systems and building
    components.

-   Initial Facility Cost Assessment for deferred maintenance and
    capital renewal work.

-   Use of Standardized Project Priority levels and "Project
    Classifications"

The results of these Facility Condition Assessments have and will
provide a basis for developing a comprehensive facility maintenance and
capital improvements plan. They provide a reasonable and supportable
estimate regarding the level of deferred maintenance and capital renewal
work required for the buildings within the Capitol Hill complex.