Lease-Purchase

In response to a congressional request, GAO reviewed the Army Corps of Engineers' acquisition of a district office building in New Orleans, Louisiana, specifically the: (1) interest rate it used to determine the lease payments; (2) total cost to the government of the lease-purchase compared to the outright purchase of the building; (3) legislation pertaining to expenditure controls in purchasing capital items through the Corps' revolving fund; and (4) year in which the Corps would report the principal portion of the lease payments to Congress as a capital expenditure.

GAO found that: (1) although the contract did not contain the interest rate, the Corps determined that the interest rate was approximately 15 percent; (2) the use of the lease-purchase option instead of purchasing the building directly would result in a loss to the federal government of $23.5 million over the 25-year lease term; (3) with the addition of about $26,000 per month for taxes and insurance, the total cost was about $31.3 million; (4) H.R. 12928 provided no limit to the fund's capital expenditures; and (5) if the Corps continues to report all planned capital expenditures over $700,000, it should report the principal portion of the lease payments in its fiscal year 2000 budget submission.