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Mr. Chairman and Members of the Subcommittee, I appreciate this opportunity to discuss the issues surrounding H.R. 2680--legislation to change the scorekeeping rule for lease-purchases of federal buildings.

My statement today focuses on four points:

• What is the lease-purchase scoring rule, and why do we have it?
  
  
• What are the advantages and disadvantages of this rule?
  
  
• What would happen if the Congress enacted H.R. 2680 and changed the rule?
  
  
• What options, other than H.R. 2680, would encourage the cost-effective acquisition of space?

The Congressional Budget Office (CBO) has concluded that changing the scoring of lease-purchases would not be beneficial and that the government should take other steps to improve the process for acquiring space. Such steps might include preparing an overall strategic plan for space acquisition, improving procedures for giving the Congress information about the most cost-effective means of acquiring space, and changing the budgetary treatment of operating leases.
 

ORIGIN OF THE LEASE-PURCHASE SCORING RULE

The lease-purchase rule deals with how the budget records the acquisition of buildings and other capital assets by the federal government. The government can obtain the use of a capital asset by:

• Purchasing the asset outright--either by acquiring an existing asset or by building a new one. Purchasing is the government's most common means of acquiring buildings, military weaponry and equipment, and other physical capital assets (such as computer systems). The federal budget records the cost of such assets at the time of acquisition or construction.
  
  
• Entering into a lease-purchase arrangement. A lease-purchase is the same as a purchase except that the federal government pays for the asset over a longer period of time and owns it at the end of the lease period rather than immediately. Everything else being equal, a lease-purchase is more expensive than a purchase because of the higher financing costs incurred by the private sector.
  
  
• Entering into an operating lease. In this type of lease, the government does not take ownership of the asset. Operating leases may be cost-effective when the government has only a temporary need for an asset. In such a situation, purchasing the asset and then selling it off again when the use is ended may not make sense. For long-term use, an operating lease is almost always a high-cost way to acquire a capital asset.
  
  
• Entering into a capital lease, which is different from an operating lease in that the government consumes most of the useful life of the asset during a capital lease. A capital lease is almost always more expensive for the federal government than purchasing the asset.

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