BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                   AB 151|
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                                 THIRD READING


          Bill No:  AB 151
          Author:   Jones (D)
          Amended:  8/17/10 in Senate
          Vote:     21

           
           SENATE GOVERNMENTAL ORG. COMMITTEE  :  8-0, 6/22/10
          AYES:  right, Harman, Calderon, Florez, Negrete McLeod,  
            Padilla, Price, Yee
          NO VOTE RECORDED:  enham, Oropeza, Wyland

           SENATE APPROPRIATIONS COMMITTEE  :  7-4, 8/12/10
          AYES:  Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
          NOES:  Ashburn, Emmerson, Walters, Wyland

           ASSEMBLY FLOOR  :  8-0, 1/27/10 - See last page for vote


           SUBJECT  :    Department of General Services:  authorization

           SOURCE  :     Board of Equalization


           DIGEST  :    This bill requires the Director of the  
          Department of General Services to conduct a study to  
          determine whether it is in the best interest of the state  
          to sell or lease specified real property in the City of  
          Sacramento owned by the state, and to report its findings  
          to the Legislature no later than April 1, 2011.  The bill  
          authorized the Director, after making a determination, to  
          sell, exchange, lease, or any combination thereof, all or a  
          portion of the property.  This bill also requires the  
          Director to use the revenues resulting from any sale,  
                                                           CONTINUED





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          exchange, or lease of the property to pay off the total  
          outstanding loan on the property, including any obligations  
          associated with it, as specified.

           ANALYSIS  :    

          Existing law:

          1. Authorizes the Department of General Services (DGS) to  
             perform various functions with regard to state property  
             and provides for the sale, lease, or transfer of surplus  
             state property, if authorized or contemplated by law.  

          2. Authorizes DGS to acquire, construct, lease, or transfer  
             state property, as specified, and when specifically  
             authorized by the Legislature. 

          3. Authorizes DGS to acquire title to real property in the  
             name of the State whenever the acquisition of real  
             property is authorized or contemplated by law, if no  
             other state agency is specifically authorized and  
             directed to acquire it.  

          4. Authorizes DGS to hire, lease, lease-purchase, or lease  
             with an option to purchase any real or personal property  
             for the use of any state agency if DGS deems the hiring  
             or leasing is in the State's best interest and is  
             specifically authorized to do so by the Legislature.  

          This bill:

          1. Requires DGS to conduct a study to determine whether it  
             is in the best interest of the state to sell or lease  
             the Board of Equalization's (BOE) headquarters in  
             Sacramento, and to report its findings to the  
             Legislature no later than April 1, 2011.

          2. Authorizes DGS, after making this determination, to  
             sell, exchange, lease or any combination thereof, all or  
             a portion of the property.

          3. Requires DGS to uses the revenue resulting from any  
             sale, exchange or lease to pay off the outstanding loan  
             on the property, including any obligations associated  







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             with it.

          4. Specifies that the proceeds from the sale of BOE  
             headquarters property are revenues resulting from the  
             sale that are in excess of the amount necessary to  
             satisfy the outstanding loan on the property.

          5. Authorizes BOE to hire (rent) or lease any property  
             without written approval of DGS and to be exempt from  
             the provisions of Government Code 14682.

          6. Authorizes BOE to exercise prescribed powers, including  
             among others, acquiring and relocating to new facilities  
             through lease of real or personal property in its name,  
             maintain offices, storage, and parking facilities, and  
             negotiating contracts and all other instruments  
             necessary or convenient for the exercise of its powers  
             and functions.

          7. Requires BOE to first consider the utilization of  
             existing state-owned, state-leased, or state-controlled  
             facilities before considering the leasing of additional  
             facilities.  If no available appropriate state  
             facilities exist, the BOE may not, absent legislative  
             approval in the Budge Act, procure new facilities to  
             meet the agency's needs.  If legislative approval is  
             given in the Budget Act, requires BOE in procuring new  
             facilities, use cost efficiency as a primary criterion,  
             among other agency-specific criteria, as applicable.

           Background
           
          In 1993, DGS entered into a lease-purchase agreement with  
          the California Public Employees Retirement System (CalPERS)  
          for the BOE headquarters building located at 450 N Street  
          in Sacramento and immediately began experiencing water  
          intrusion problems caused by heavy rains.  

          Another major problem was the curtain wall window system  
          failure, which was identified in 1998, in which windows  
          leaked and fell to the street below and onto the surface of  
          the attached parking garage (seven windows fell between  
          1999 and 2005).  Moreover, due to the water intrusion, in  
          2007 mold was discovered on the top three floors, which  







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          were subsequently vacated, thus requiring the relocation of  
          over 200 employees to another building.  Subsequent  
          inspections led to the discovery of mold on every floor,  
          and remediation of this issue is ongoing.

          In 2006, the state exercised its option to purchase the  
          building.  A loan of approximately $81 million was approved  
          from the Pooled Money Investment Account (PMIA) effective  
          in 2007.  The outstanding balance on the loan is currently  
          about $91 million.  According to the Governor's 2010-11  
          budget proposal, lease-revenue bonds to pay back the PMIA  
          loan will be sold prior to June 30th of this year.  The  
          budget indicates that debt service of about $8.2 million  
          annually will commence on these bonds in 2010-11.

           Comments
           
          Given the ongoing problems with its headquarters, the BOE,  
          which is sponsoring this measure, believes "it is time for  
          the State to take a step back and have a thorough  
          independent economic analysis performed to determine the  
          most cost beneficial manner for the State to address the  
          450 N Street building."

          The BOE cites the continuing costs for the repairs  
          described above, the loss of productivity (with associated  
          cost and loss of revenue generation) from having to  
          continually move staff around the building to accommodate  
          the mold remediation, and pending building infrastructure  
          repairs as identified by DGS.  Past and ongoing repairs,  
          plus all known infrastructure repairs identified for the  
          future, including the costs of remediation, lost  
          productivity and revenue is estimated to be approximately  
          $98 million.  

          The BOE further indicates that, while their staff has grown  
          to 2,900 employees, the building was designed to  
          accommodate only 2,200 personnel.  The BOE began a process  
          of housing the overflow staff in separate, leased  
          facilities.  The BOE argues that "As a tenant with no  
          ownership interest, the BOE should not be responsible for  
          paying the extensive repairs needed for the State's 450 N  
          Street building." 








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           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

          According to the Senate Appropriations Committee analysis:

                          Fiscal Impact (in thousands)

           Major Provisions                2010-11     2011-12     
           2012-13   Fund
           Study                              Up to $250 one  
          timeGeneral*
                                                            Special

          Disposal of property                         Unknown, one  
          time, revenue                                General**
                              Potentially up to $91,000; amount  
          available for
                              deposit in subaccount probably $0

          Acquisition of property                           Unknown,  
          multi millions of dollars in                      General*
                              costs over several years to  
          acquireSpecial
                              facilities and consolidate BOE  
          operations

           * Property Acquisition Law Account or a variety of other  
            special funds; 56 percent General Fund
          ** Deficit Recovery Bond Retirement Sinking Fund Subaccount

           SUPPORT  :   (Verified  8/17/10)

          Board of Equalization (source)
          SEIU, Local 1000

           OPPOSITION  :    (Verified  8/17/10)

          Department of Finance

           ARGUMENTS IN SUPPORT  :    The BOE believes it is time for  
          the State to take a step back and perform a thorough  
          independent economic analysis to determine the most cost  
          beneficial manner to address the 450 N Street building.   
          Continuing to spend millions of taxpayer dollars per year  







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          on a host of building issues does not adequately address  
          the long-term building problems for the State.  The current  
          approach continues to drain the State's budget without any  
          assurance that it will stop.  The BOE believes that this is  
          an opportunity to make a strategic determination as to what  
          is in the best financial interest for the State, especially  
          during this current fiscal crisis.  An economic  
          development/economic analysis will provide the State with  
          the following high-level benefits:  (1) a thorough review  
          of the remaining repairs needed at the 450 N Street  
          building and their associated costs, (2) suggestions for  
          addressing the debt service on the building and repair  
          costs, (3) opportunities to partner with private sector  
          developers to address the short and long-term use of the  
          building, (4) opportunities to sell the building or locate  
          a back-fill tenant, (5) options to meet BOE's space needs  
          with a facility of the appropriate size. 

           ARGUMENTS IN OPPOSITION  :    The Department of Finance  
          contends that no additional legislative authority is  
          required for DGS to investigate the possible relocation of  
          BOE.  Finance notes that DGS and BOE are currently working  
          to develop a study that will examine the very points  
          envisioned by this bill.

           ASSEMBLY FLOOR  : 
          AYES:  dams, Ammiano, Anderson, Arambula, Beall, Bill  
            Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,  
            Bradford, Brownley, Buchanan, Caballero, Charles  
            Calderon, Chesbro, Conway, Cook, Coto, De La Torre,  
            Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes,  
            Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore,  
            Hagman, Harkey, Hayashi, Hernandez, Hill, Huber, Huffman,  
            Jeffries, Jones, Knight, Lieu, Logue, Bonnie Lowenthal,  
            Ma, Mendoza, Monning, Nava, Nestande, Niello, Nielsen,  
            John A. Perez, Portantino, Ruskin, Saldana, Silva,  
            Skinner, Smyth, Solorio, Audra Strickland, Swanson,  
            Torres, Torrico, Tran, Villines, Yamada
          NO VOTE RECORDED:  arter, Davis, De Leon, DeVore, Hall,  
            Miller, V. Manuel Perez, Salas, Torlakson, Bass


          TSM:do  8/17/10   Senate Floor Analyses 








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                         SUPPORT/OPPOSITION:  SEE ABOVE

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