CBO
TESTIMONY
Statement of
James L. Blum
Deputy Director
Congressional Budget Office
on the
Lease-Purchase Scorekeeping Rule
before the
Subcommittee on Legislation and National Security
Committee on Government Operations
U.S. House of Representatives
September 20, 1994
NOTICE
This statement is not available for public release
until it is delivered at 10:00 a.m. (EDT), Tuesday, September 20, 1994.
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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:
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What is the lease-purchase scoring rule, and why do we have it?
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What are the advantages and disadvantages of this rule?
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What would happen if the Congress enacted H.R. 2680 and changed the rule?
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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:
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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.
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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.
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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.
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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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