The departments of the Army, Navy, and Air Force have a variety of statutory authorities that allow them to accept payments in the form of in- kind renovation or construction of facilities. For example, in fiscal year 2013, DOD used authority provided by sections 2667 and 2668 of Title 10 of the United States Code to lease or issue easements relating to domestic real property under their control or jurisdiction in exchange for payment in the form of in-kind construction or renovation projects. A description of these authorities is provided in table 1. For leases, the services are required under section 2667 of Title 10 to receive payments in an amount that is not less than the fair-market value of the property interest, as determined by the military department Secretary. Concerning cash payments received in exchange for leases and easements, section 2667 provides that, generally, money rentals must be deposited into a special account in the U.S. Treasury and must be appropriated before they can be used. Once appropriated, section 2667 provides that at least 50 percent of the funds shall be available for use only at the installation where the leased property is located. Overseas in-kind payment projects are subject to specific bilateral agreements and statutory authorities. Bilateral agreements include efforts to relocate U.S. forces and consolidate infrastructure being used by DOD. There are also other agreements between the United States and host nations to defray some of the costs of stationing U.S. forces overseas, and to support installations that will continue to be used by the United States—known as enduring installations—through the use of host-nation resources. According to DOD real-property management officials, installation personnel are generally responsible for selecting domestic in-kind payment projects based on the needs of the installation and its chain of command. Each installation has a list of unfunded construction and renovation projects that were not included in the military services’ budget submissions to the Office of the Secretary of Defense. The military services generally allow each installation to decide which projects from these lists should be considered for in-kind payment projects. The responsibility for managing in-kind payment projects is generally shared between installation personnel and the services’ respective real-property management offices or agencies. Within the Navy, the Secretary of the Navy has delegated certain real-property management responsibilities to Naval Facilities Engineering Command. Specifically, Naval Facilities Engineering Command, subject to certain requirements, is authorized to grant, execute, amend, administer, and terminate all instruments granting the use of Navy-controlled real property, to include real-estate transactions using in-kind payment projects. Within the Air Force, the Secretary of the Air Force has delegated certain real-property management responsibilities to the Air Force Civil Engineer Center. The Air Force Civil Engineer Center is responsible for acquiring, disposing of, and managing all Air Force-controlled real property. Within the Army, the Chief of Engineers is the principal advisor to the Secretary of the Army for policy formulation related to real property. According to Army officials, the Secretary of the Army generally has delegated responsibilities to the Army Corps of Engineers for execution of a variety of real-estate transactions, including transactions that include in-kind payments. DOD reported that the military services initiated 137 in-kind payment projects in Asia, Germany and the United States during fiscal year 2013 with an estimated value of at least $1.8 billion. In Asia, DOD reported initiating 105 in-kind construction and renovation projects with a total value that DOD estimated to be at least $1.6 billion. Of the 105 projects in Asia, 31 are in Korea with an estimated value of $1.57 billion and 74 are in Japan—32 of which have an estimated value of $264 million. In Germany, DOD reported initiating 3 in-kind payment projects with a total value that DOD estimated to be almost $20.7 million. For domestic locations, DOD reported initiating 29 in-kind construction and renovation projects with a total value that DOD estimated to be $18.6 million. Of the 29 domestic projects, the Navy initiated 22 and the Air Force initiated 7. The Army and Marine Corps did not initiate any domestic in-kind payment projects in fiscal year 2013. Table 2 summarizes the number and value of in-kind payment projects by location and also highlights the most frequently reported purpose for which the projects were used. Appendixes II through V provide more detailed information for each in- kind payment project initiated by DOD in fiscal year 2013. The military services’ real-property management officials reported as many as four advantages to accepting in-kind payment projects rather than cash payments in domestic real-estate transactions, and officials from the three services reported one disadvantage. Installations can generally obtain facilities more quickly. According to officials of the Army Corps of Engineers, Air Force Civil Engineer Center, and Naval Facilities Engineering Command, in-kind payment projects can be advantageous because the value received does not need to be re- appropriated and can be immediately available to the installation. While congressional notification is required if the estimated annual fair-market value of a lease or easement exceeds $750,000, the law does not require appropriation of the funding for in-kind payment projects, so the benefits may be realized sooner. For example, in 2008 at Nellis Air Force Base, Nevada, the Air Force entered into an agreement with the city of North Las Vegas to allow construction of a wastewater treatment plant on 41 acres of land leased from Nellis. As part of its payment to the base, the city agreed to fund the construction of a new $27 million fitness center. According to Air Force Civil Engineer Center officials, the base had a longstanding requirement for an updated fitness center but was unable to secure funding for it. Once the agreement was signed, the city immediately began construction and the base was able to open the new fitness center in 2012. By contrast, if an installation receives cash payments, section 2667 requires the immediate deposit of all cash into a special account in the U.S. Treasury where it is subject to the appropriation process before the installation can use it. Officials stated that it can take up to a year between the deposit of the cash payments and the funds being provided to the installation. The originating installation is more likely to receive100 percent of the negotiated payments for the real property interest. According to Army Corps of Engineers, Air Force Civil Engineer Center and Naval Facilities Engineering Command officials, although the receipt of in-kind payment projects is at the discretion of the respective military department Secretary, the military department secretaries generally allow the installations where the real-property is located to receive 100 percent of any negotiated in-kind payments resulting from real property agreements. Conversely, section 2667 states that, subject to appropriations, installations are guaranteed to receive only 50 percent of any deposited cash payments, and can receive the other 50 percent only at the discretion of the respective military department secretary. In-kind payments are not governed by similar restrictions, and, as such, are more likely to result into the installation receiving 100 percent of the value generated by its real estate transactions. Installations may have the opportunity to potentially receive infrastructure improvements worth more than the fair-market value of the property interest. Air Force Civil Engineer Center and Naval Facilities Engineering Command officials stated that the nature of a potential developer’s business or expertise and economies of scale may allow the developer to provide in-kind payment projects worth more than the fair-market value of the property interest by obtaining construction materials or labor at a below-market cost. For example, in 2004 the Navy entered into an agreement with a real-estate development firm to redevelop the Moanalua Shopping Center at the Pearl Harbor Naval Complex, Pearl Harbor, Hawaii. As part of the agreement, the Navy conveyed the existing shopping center to the developer as well as development rights for up to another 15,000 square feet of new commercial market space. As payment to the Navy, the developer was required to demolish over 40,000 square feet of existing space and to develop 40,000 square feet of new administrative space to be used as a Navy community support services center. A 2004 Navy analysis valued these demolition and construction projects at about $21 million—which was about $8 million more than the appraised market value of the property conveyed by the Navy. Installation officials generally have more flexibility in real-estate transactions. According to officials of the Air Force Civil Engineer Center, in-kind payment projects offer installation officials greater flexibility in executing real-estate transactions, especially in cases where a developer does not have cash readily available at the time the real-estate transaction is executed. Also, allowing in-kind payment projects can increase the potential pool of developers, the officials stated. For example, in-kind payment projects may be the only way to secure adequate value from non-profit or charitable organizations that may not have adequate cash resources but have the ability to provide goods and services. These same military service officials reported that one common disadvantage to accepting in-kind payment projects rather than cash payments is the amount of additional administrative work and oversight needed to execute the in-kind agreements. Army Corps of Engineers, Air Force Civil Engineer Center, and Naval Facilities Engineering Command officials identified three scenarios in which in-kind payment projects likely will require additional work and oversight. Additional work and oversight to ensure that the transaction complies with statutory requirements. Several statutes govern the receipt of in- kind payment projects, so installation personnel conduct reviews to ensure that the transactions follow appropriate financial and administrative procedures as required by law. Additional work and oversight to ensure that the developer is complying with the terms of the transaction. For example, installation personnel work to properly monitor construction and renovation progress to ensure that the developer is adequately providing any agreed-upon services over the terms of the agreement. Additional work and oversight to ensure that in-kind payment projects are properly valued over time.