Lease Refinancing

Pursuant to a congressional request, GAO evaluated the General Services Administration's (GSA) proposed Master Installment Purchasing System (MIPS) and the Army's lease refinancing program, focusing on the extent to which the programs' separation of lease financing from equipment procurement could reduce costs to the government.

GAO found that: (1) MIPS proposed to separate equipment procurement from lease acquisition financing by pooling equipment needs under a standard master lease with aggregate dollar values large enough to attract private investors, from whom GSA could purchase the equipment through installment purchase contracts at lower costs than available from equipment vendors or lessors; (2) states and large cities have successfully used MIPS-type programs to reduce equipment leasing costs; (3) the Office of Management and Budget objected to MIPS, contending that installment purchase contracts were more expensive than outright purchases, MIPS would enable GSA to purchase equipment without fully disclosing the total acquisition costs, and MIPS violated antideficiency legislation by improperly allowing GSA to commit the government to multiyear installment purchase contracts, while obligating only annual costs; and (4) the Army's program used a similar master lease concept, but differed from MIPS in that it annually renewed master leases, exercised equipment purchase options on existing leases, and did not involve new leasing. GAO believes that: (1) both programs' lease financing concepts have potential for appreciable dollar savings; and (2) GSA could develop a MIPS program that does not violate antideficiency legislation.