423.1 Real Property Valuation
Office of Primary Responsibility: Office of Management Services
1. Policy. It is U.S. Geological Survey (USGS) policy to exercise responsible oversight of its owned and leased real property assets. Accurate inventories and valuations are key to effective real property management and compliance with established accounting standards and associated reporting. Accordingly, in issuing this directive, the bureau is establishing the procedural structure for determining and recording real property valuation, capitalization, and depreciation; assigning responsibilities to designated officials to ensure effective accountability; and defining other measures requisite to responsible real property asset oversight.
2. Purpose. This chapter establishes policy and prescribes procedures governing real property valuation, capitalization, and depreciation at the USGS, including construction in process for real property assets. It also describes the related responsibilities of USGS officials. The Department of the Interior's (DOI's) real property financial management guidance (see paragraph 423.3) is lengthy and detailed, and includes topics such as heritage and stewardship assets that are primary concerns of the land-management bureaus. To avoid repetition and to promote more focus on USGS-specific processes, this chapter frames bureau policy and procedures in the broader context in which bureau real property and financial management activities operate.
3. Authorities. The chief authority governing real property valuation, capitalization, and depreciation is the Statement of Federal Financial Accounting Standards Number 6 (SFFAS No. 6, Accounting for Property, Plant, and Equipment, issued by the Federal Accounting Standards Advisory Board), as amended. Authorities on related real property and capital asset oversight programs include the Federal Management Regulations and Office of Management and Budget Circular A-11. The Deputy Assistant Secretary-Budget and Finance's April 30, 2003, memorandum and attachment provide guidance on the DOI real property financial management policy and a level of detail that amplifies the provisions of this chapter.
4. Scope. The USGS relies on various space sources to house its science and support activities. Buildings at USGS-owned and USGS-leased installations typically provide about 18 percent and 4 percent of the bureau's occupied space, respectively. These buildings and associated land and other structures and facilities are core assets and subject to periodic reporting for both financial and real property management purposes. As it is provided under statute as a mandatory space source and is neither USGS-owned nor USGS-leased, General Services Administration space is not subject to the provisions of this chapter.
5. Responsibilities. The Chief, Office of Administrative Policy and Services exercises executive oversight of the bureau financial and real property management programs and also serves as the bureau's Chief Financial Officer. For purposes of real property valuation, capitalization, and depreciation, the responsibilities of designated officials follow:
A. Chief, Office of Management Services (OMS), has the following responsibilities:
(1) Collects information on owned and leased real property assets and prepares required reports, including the bureau's Annual Report of Real Property Owned by or Leased to the United States and those required to support Office of Financial Management (OFM) accounting requirements.
(2) Establishes and maintains a database that provides an inventory of bureau real property assets and associated valuations and a capability for reporting consistent with established capitalization thresholds and other prescribed accounting requirements.
(3) Collects and maintains documentation that supports new and revised asset-specific real property valuations.
(4) Maintains estimates of the bureau's deferred maintenance backlog pursuant to the provisions of Survey Manual chapter 422.1-Deferred Maintenance.
(5) Otherwise assists OFM in performing its accounting functions relative to the bureau's owned and leased real property assets.
B. Chiefs, Offices of Regional Services (ORS), have the following responsibilities:
(1) Maintain up-to-date records supporting the inventory and valuation of owned and leased real property assets physically located in their respective regions.
(2) Ensure that adequate contract and other documentation is established and maintained to support new and revised asset-specific real property valuations.
(3) Using prescribed evaluation methods, determine whether each regional USGS real property lease is a capital or operating lease and report the results of the determinations upon request.
(4) Identify and, upon request, report on the future lease payments for each regional USGS real property lease.
(5) Maintain records of the costs of construction in process (see paragraph 423.6C) and report those costs to OFM for posting in appropriate accounts.
C. Chief, OFM, has the following responsibilities:
(1) Establishes bureau accounts and financial management processes that provide effective oversight and timely and accurate recording of bureau real property in the general ledger.
(2) Ensures that real property construction work-in-process transactions are recorded in an appropriate transitional account during the course of construction and, upon the asset's placement in service, transferred with the balance to general property, plant, and equipment.
(3) Issues ad hoc and regular data collections to ensure that construction-in-process, valuation changes, and other accounting transactions relative to bureau real property are recorded in a timely and accurate manner.
(4) Establishes a real property capitalization threshold consistent with departmental guidance and maintains an up-to-date inventory of real property holdings at or above the established capitalization threshold.
(5) Depreciates bureau real property assets and accumulates depreciation in accordance with the capitalization threshold, established useful lives, and other relevant criteria.
6. Procedures. In performing the responsibilities identified in paragraph 423.5 above, the following procedures apply:
A. Capitalization. Real property acquired before October 1, 2003, is capitalized if the valuation equals or exceeds $50,000. Real property acquired on or after October 1, 2003, is capitalized if the valuation equals or exceeds $100,000. This increase in the real property capitalization threshold to $100,000 implements DOI guidance issued in June 2003. In accordance with that guidance, the new capitalization policy is implemented prospectively. For real property program purposes, virtually all permanent assets at an owned installation are counted in the inventory. This level of detail is necessary for operations and maintenance budgeting, workload planning, and asset reporting, and for effective on-site maintenance management. When an asset is capitalized, its cost is treated as a long-term investment. Therefore, in determining the value of the asset, both its original cost and the decline in its value due to general wear and tear or obsolescence have to be considered. This accounting procedure is termed depreciation, which applies the number of years the asset has been in service to calculate its current valuation. Inherent in this treatment is a determination that the asset has a useful life, which is the number of years that it is expected to be operational. Any asset that has an estimated useful life of less than two years is not capitalized. The range of useful lives for the most common real property assets is from 10 years for temporary buildings and structures to 40 years for masonry buildings and structures. Real property asset improvements meeting the threshold and useful life criteria are also capitalized. For an existing asset, a capital improvement (also termed a "betterment") extends the asset's useful life or capacity. Capital improvements, regardless of acquisition value, are included in the real property inventory. However, only capital improvements valued at or above the capitalization threshold are capitalized. OFM applies the capitalization threshold and depreciates qualifying assets and capital improvements in accordance with established criteria.
B. Capital Leases. Acquiring a leasehold interest in real property, i.e., leasing space, typically is simply the contractual process of obtaining the use of a specified amount of space and accompanying services for a specified term at a specified cost. Although the leasehold interest provides a contractual privilege of tenancy that has a value primarily in the sense that the tenant could sublease the space to another party during the term of the lease, this common leasing situation, also known as an operating lease, provides no tangible benefits of real property ownership. Nor does it entail the risks of ownership. However, in capital leases, those atypical situations where property ownership transfers or the lessee's contractual obligations are tantamount to those of ownership, accounting rules dictate that the costs of leasing are treated as a long-term investment. Capital leases are therefore subject to the capitalization threshold. Valuation is based on the amortization of lease costs, and the lease term is the effective useful life of the asset for valuation purposes. A departmental worksheet provides a step-by-step means for determining if a lease is a capital lease. Budget scoring rules require that the capital lease determination be made well in advance of acquisition. ORS uses the departmental worksheet to determine the lease type (capital or operating) and reports the results and required documentation to Office of Management Services (OMS) upon request.
C. Construction in Process. For real property program purposes, an asset traditionally achieves inventory status when it is placed in service, i.e., when construction or other acquisition is completed and occupancy begins. However, in the process of constructing a real property asset or making a capital improvement to an existing building or other structure, the Government may expend substantial funds. If a fire or similar event destroys a partially completed building, for example, there is obviously an associated loss, and this loss must be addressed for accounting reasons. Therefore, SFFAS No. 6 requires the tracking of amounts expended for specified costs before the asset is actually placed in service. If the costs of constructing a new real property asset will exceed the bureau's capitalization threshold, the project is subject to construction-in-process reporting and tracking. If a facility capital-improvement project will expand the capacity of the asset or extend its useful life and its associated costs exceed the bureau's capitalization threshold, the project is subject to construction-in-process reporting and tracking. When a qualifying facility project begins, ORS works with on-site staff, the contracting officer, and others to collect documentation supporting amounts attributable to construction in process and reports those amounts periodically to OFM for posting in the appropriate account. Excerpted from SFFAS No. 6, the following lists examples of costs that are incurred to bring an asset "to a form and location suitable for its intended use" and are therefore tracked as construction in process:
(1) amounts paid to vendors or contractors, including fees;
(2) transportation charges to the point of initial use;
(3) handling and storage charges;
(4) labor and other direct or indirect production costs (for assets produced or constructed);
(5) engineering, architectural, and other outside services for designs, plans, specifications, and surveys;
(6) acquisition and preparation costs of buildings and other facilities;
(7) an appropriate share of the cost of the equipment and facilities used in construction work, including depreciation;
(8) fixed equipment and related costs of installation required for activities in a building or facility;
(9) direct costs of inspection, supervision, and administration of construction contracts and construction work;
(10) legal and recording fees and damage claims;
(11) fair values of facilities and equipment donated to the Government, and
(12) material amounts of interest costs paid.
D. Future Payments. In the real property program, projections of future payments can be useful for budget formulation and cost-benefit analysis. For accounting purposes, future payment estimates represent probable and measurable future outflow. These estimates help gauge the magnitude of the bureau's future liability stemming from past transactions or events and serve as one indicator of the bureau's financial condition. Awarding a multi-year lease, for example, represents a commitment of future payments to the lessor. ORS tabulates estimates of future payments and, in response to periodic data calls, reports them to OMS for consolidation and submission to OFM for appropriate recording.
E. Deferred Maintenance. Deferred maintenance is maintenance that was not performed when it should have been or when it was scheduled and which, therefore, was put off or delayed for a future period. There are two components of deferred maintenance at the USGS: facilities and other mission infrastructure (under the banner of equipment projects) such as hazards-warning networks, river cableways, and gauging stations. OMS collects facility and equipment project proposals, including deferred maintenance and capital improvements, as part of the budget formulation process for the Facilities Budget Activity. Estimates of the deferred maintenance portions of all qualifying projects constitute the base for establishing the range of deferred maintenance included in bureau backlog estimates. OMS reports this range annually to OFM for inclusion in bureau accounting documents pursuant to SFFAS No. 6.