Budget-scorekeeping rules were developed by the executive and legislative branches in connection with the Budget Enforcement Act of 1990. These rules are to be used by the scorekeepers to assure compliance with budget laws. Their purpose is to ensure that the scorekeepers measure the effects of legislation consistent with scorekeeping conventions and specific legal requirements. The rules are reviewed annually and revised as necessary to achieve that purpose. Leases may be of two general types—operating and capital. The Office of Management and Budget (OMB) identifies six criteria that a lease must meet in order to be considered an operating lease rather than a capital lease. Ownership of the asset remains with the lessor during the term of the lease and is not transferred to the government at or shortly after the end of the lease term. The lease does not contain a bargain-price purchase option. The lease term does not exceed 75 percent of the estimated economic life of the asset. The asset is a general purpose asset rather than being for a special purpose of the government and is not built to unique specifications of the government lessee. There is a private sector market for the asset. The present value of the minimum lease payments over the life of the lease does not exceed 90 percent of the FMV of the asset at the beginning of the lease term. If a lease does not meet all six criteria above, it must be treated as a capital lease for budget-scoring purposes. For a capital lease, the net present value of the total cost of the lease is scored as budget authority in the year budget authority is first made available for the lease. For GSA operating leases, only the budget authority needed to cover the annual payment is required to be scored. As we previously reported, in general, capital facilities should be funded up front at the time the federal government enters into the commitment. In June 1991, GSA wrote to OMB generally describing the policies and procedures it would follow to ensure the proper implementation of the new budget scoring rules. These rules were incorporated in OMB Circular A-11. Appendix B of the circular contains the scoring rules for lease- purchases and leases of capital assets. In March 1992, GSA wrote to OMB saying that after reviewing its nonprospectus inventory, as well as OMB policies and procedures, GSA concluded that nonprospectus leases should be considered operating leases for scoring purposes without the necessity of a case-by-case determination. In this letter, GSA stated that there was no practical way to implement a policy of determining whether each nonprospectus lease met the criteria for being considered an operating lease without severely damaging its ability to meet client-agency needs. GSA considered this view consistent with OMB’s intent, as well as an operational necessity. In April 1992, GSA issued guidance on lease scoring in which it stated that all nonprospectus leases are to be considered operating leases unless the lease is a lease-purchase, the lease contains a nominal or bargain purchase price, or the lease is on government-owned land. All nonprospectus leases that met one of these exceptions were to be scored as capital leases by the regions. All prospectus-level leases were to be scored at GSA’s central office. In October 1998, GSA announced it was no longer following the policy of considering most nonprospectus leases as operating leases. Since then, according to GSA officials, GSA has required regional offices to apply the appropriate criteria to all prospectus and nonprospectus leases and that copies of the resulting scoring be retained in the regionally maintained lease file. GSA headquarters is to review the scoring of all prospectus-level leases. Two of the six scoring criteria used to determine an operating lease concern the term of a lease: that the lease term not exceed 75 percent of the estimated economic life of the asset and that the present value of the minimum lease payments over the life of the lease not exceed 90 percent of the FMV of the asset at the beginning of the lease term. According to GSA officials, GSA’s leases generally meet the first of these two criteria. If GSA rents new space, it meets this criterion because it only has 20-year leasing authority and tax law specifies that a new building’s economic life is longer than 30 years (30 yrs. times 75% = 22.50 yrs.). If GSA rents older space, it generally requires it to be upgraded, which extends the building’s estimated economic life, thereby meeting this criterion. Thus, the remaining criterion that could affect the lease term is that the present value of the minimum lease payments over the life of the lease not exceed 90 percent of the FMV of the asset at the beginning of the lease term. For example, if a lease has a 20-year term whose present value of the minimum lease payments exceeds 90 percent of FMV then by reducing the 20-year term, the present value of the minimum lease payments is reduced while the FMV of the asset remains the same. This lowering of the percentage relationship between present value of the minimum lease payments and 90 percent of FMV allows a lease to meet this scoring criterion. However, if a lease does not meet any one of the other four scoring criteria, the lease would be a capital lease no matter what the term. Six of GSA’s 11 regions identified 12 projects or leases for which the scoring process had affected the term of the lease. In one other region, according to a GSA official, GSA thought that the term of about eight other leases had been affected in the last 2 years but they could neither identify those leases nor the impact of budget scoring on the lease term. GSA officials from the other four regions said they could not identify any projects affected by budget scoring. Only 2 of the identified 12 projects—a lease for the Immigration and Naturalization Service and a lease for the Secret Service—were among the 39 prospectus-level projects reviewed, and none came from the 102 lease files we reviewed. According to GSA officials, other factors, such as the agency or the market, determined the term of these other leases. Table 1 lists the leases or lease projects that we or GSA identified as being affected by scoring. According to GSA officials, during the planning for the Department of Transportation lease, it was realized that due to the rental rates in the District of Columbia, a 20-year lease would probably not satisfy the 90 percent scoring criterion. In order to address this issue, GSA reduced the lease term to 15 years, estimating that the present value of the minimum lease payments for a 15-year lease would not exceed 90 percent of the FMV. For the SSA lease, according to officials, it was originally submitted as new construction but not approved. GSA then decided to do it as a 20- year build-to-suit lease, but when reviewed it was determined that it would be a capital lease because it did not satisfy the 90-percent scoring criterion. At OMB’s direction, the lease was awarded as a 10-year lease because OMB thought that SSA space needs might be reduced in the future because of automation. Four factors limited the identification of leases affected by budget scoring, according to GSA officials. First, GSA did not begin determining whether each nonprospectus lease met the scoring criteria for being considered an operating lease until about October 1998. GSA issued guidance in 1992 that stated there was no practical way to implement a policy of determining whether each nonprospectus lease met the criteria for being considered an operating lease without severely damaging its ability to meet client-agency needs. Nonprospectus leases were to be considered operating leases unless the lease was a lease-purchase, the lease contained a nominal or bargain purchase price, or the lease was on government-owned land. Thus, it is unknown if nonprospectus leases would have been affected by scoring between 1992 and 1998. Second, prospectus-level leases were scored in headquarters until September 1998, and scoring records were not kept in the lease files that are maintained by GSA’s regional offices. Third, GSA headquarters does not maintain documentation on whether the scoring process affected the lease term. According to a headquarters official, although GSA kept copies of scoring for prospectus leases, the records do not show whether the term was directly affected by scoring. Fourth, according to GSA officials, budget-scoring rules affect an unknown number of leases because if staff believe a project will be affected by budget-scoring rules, they reduce the term to avoid the potential scoring conflict. However, they do not formally score the lease and do not use the scoring rules as a tool to identify the best term. As of October 1998, GSA’s regional offices were to score and document the scoring of both prospectus and nonprospectus leases, according to officials. However, the officials said that the files will contain only the final scoring sheets and not preliminary runs that might identify situations where a lease term was adjusted in order for the lease to score as an operating lease. We could not determine the actual monetary impact of reducing the lease term. However, we found two leases in which GSA requested 10-year and 20-year and 15-year and 20-year lease costs. GSA provided a consultant’s report showing the difference between 10- and 20-year lease costs for another project and the SEC lease had 15- and 20-year lease costs. GSA did not identify these two lease terms as being affected by budget scoring. However, the SEC lease term was affected by scoring. According to GSA officials, GSA does not generally seek comparisons of short- and long-term lease costs in the solicitation process.