Army Corps of Engineers: Rental Rates for Concession Operations Need Biennial Review

What GAO Found

At water resource development projects managed by the U.S. Army Corps of Engineers' Civil Works program, private businesses may enter into lease agreements to operate recreational facilities and provide amenities, such as selling food. These business activities are known as concession operations. Since 1994, the Corps has determined rental rates for all new concession operation leases using a system of graduated rates based on gross annual sales receipts—that is, the total of the concession operator's receipts from business operations conducted on the premises, with certain allowable reductions. The rental rates start at 2.0 percent for gross receipts under $50,000 per year and increase to 4.6 percent for gross receipts of $5,000,001 per year and above. According to Corps officials, the Corps considered the ability of concession operators to obtain a fair profit when it established the rates.

However, the Corps has not fully followed relevant federal guidance in setting concession operation rental rates because it has not documented any reviews or updated those rates since 1994. Specifically, consistent with Office of Management and Budget guidance and the Department of Defense's Financial Management Regulation, the Corps should biennially review user charges, including lease payments, for agency programs. The review is to include assurance that existing charges are adjusted to reflect unanticipated changes in costs or market values. Since the Corps has not adjusted the monetary thresholds for inflation, concession operators may be paying a relatively higher rate for the same level of economic activity as when the rental rates were set.

In addition, Corps districts may collect user fees from concession operators to cover the costs of certain Corps administrative expenses related to the leases. In GAO's December 2023 report on the Corps' management of administrative fees for real estate transactions, including leases to concession operators, GAO made six recommendations––for example, that the Corps require divisions or districts to regularly review fees and post fee information on their websites. The Corps agreed with five recommendations and partially agreed with one. In March 2024, the Corps provided GAO with its corrective action plan that identifies planned steps to implement these six recommendations. We will continue to monitor its progress.

Examples of the Corps’ Public Recreation Amenities

Why GAO Did This Study

According to a December 2023 Corps report to Congress, as of June 2022 the Corps had 378 active concession operations leases in 27 states. Corps divisions and districts conduct most of the work of managing leases for concession operations. The James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 includes a provision for GAO to review specific aspects of the Corps' concession operation leasing practices. This report answers questions related to those leasing practices.

GAO reviewed Corps documentation and interviewed Corps officials about the system the agency uses to calculate the rental rates concession operators pay. GAO also reviewed and summarized relevant analyses and information from GAO's December 2023 report on the Corps' management of administrative fees for real estate transactions (GAO-24-106188).