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B-95136 1 (1974-05-22)

handle is hein.gao/gaobaaegg0001 and id is 1 raw text is: R S T R C T E D p o t t b e e e a s e d o ur ts i e t h e* A Ocl ri Of © e' except o the basi o e cM,' & i e S COMPTROLLER GENERAL OF THE UNITED STATES '§ WASHINGTON, DC. 20540 RELEASED 2 - &X B-95136 MAY 22 1974 The Honorable Dick Clark Chairman, Subcommittee on ( # Public Buildings and Grounds 0 lIo/ Committee on Public Works United States Senate Dear Mr. Chairman: / On December 13, 1973, you requested our comments on your letter to the General Services Administration (GSA) of the same date outlining /, additional information to be included in GSA prospectuses for Federal building projects presented for congressional approval. We believe that this added information should facilitate the Subcommittee's review and evaluation of GSA proposals, and our comments on the proposed require- ments follow. Item 3 of your letter would require that a prospectus contain present- value comparisons of alternatives considered, including full life-cycle and initial costs, and that an appropriate discount rate be used. Selectinxoan.ap.p iate,, discount rate has been one of the major problems in using present-value comparisons. Arguments have been presented for rates ranging as low as the cost of borrowing by the Treas- ury to as high as the rates of return that can be earned in the private sector of the economy. The discount rate used diglg acts the re- slits an onclusions o f a lease,- c onstructp, cmparison. Therefore, selecting the appropriate rate is more than academic. As a rule, con- struction will be more economically advantageous as the discount rate decreases and, conversely, leasing normally will be more economically advantageous as the discount rate increases. We have advocated using a present-value analysis in lease vers s purchasecost co'p agispns. In comparisons such as these, when the Government is attempting to select the least expensive way to finance an investment, the average yield on outstanding marketable U.S. Treas- ury obligations--with remaining maturities comparable to the analysis period--is a fair indication of the Government's cost of money and is an acceptable basis for establishing the discount rate. Although present-value analysis provides the appropriate basis.for evaluating alternatives that differ in the timing of cash flows, knowing the total undiscounted dollar cost (outlays), including anticipated in- flation, could also be useful to the Congress. In considering proposed authorizations and/or appropriations, the Congress should be aware of the total fund requirements needed to finance each investment alternative over its estimated life. Life-cycle costing, according to GSA, includes an evaluation of the effect of building design not only on initial cost but also on the cost of a'I / / / V^ 0^ Urolm

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