BILL ANALYSIS
AB 151
Page 1
Date of Hearing: January 12, 2010
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 151 (Jones) - As Amended: September 10, 2009
SUBJECT : Department of General Services: authorization.
SUMMARY : Authorizes the Department of General Services (DGS)
to investigate and negotiate to sell, exchange, or lease any
portion of the Sacramento property used for Board of
Equalization (BOE) offices, and investigate and negotiate new
land and facilities for a BOE headquarters using the net
proceeds of the initial agreement. Specifically, this bill :
1)Requires further legislation authorizing DGS to sell,
exchange, or lease, any portion of the current BOE
headquarters.
2)Prohibits DGS from disposing of the specified Sacramento land
and facilities that would be acquired as its new headquarters.
3)Makes legislative findings and declarations that it is the
intent of the Legislature, in the 2010-11 Budget Act, to
transfer operating funds from BOE to DGS to pay for DGS's
actual reasonable costs incurred for actions taken pursuant to
this bill.
EXISTING LAW :
1)Authorizes DGS to plan, acquire, construct, and maintain state
buildings and property.
2)Provides for DGS to dispose of state surplus property, subject
to specified conditions and upon legislative approval.
FISCAL EFFECT : Unknown
COMMENTS : According to the author's office, "This bill is
designed to jump start a solution-oriented discussion about
moving the BOE out of the 450 N Street building?. The state owns
the 450 N Street building and has an outstanding balance of
$90.7 million for the loan payments, interest, and
administrative fees." BOE currently rents the building from DGS
AB 151
Page 2
for use as its headquarters and is contractually obligated to
pay for any tenant building improvements. "The current estimate
for all building repairs has grown to $68 million, including
mold remediation, evaluation modernization, curtain wall repair,
and other infrastructure repairs."
According to the sponsor, BOE, "In 2005, repairs to the building
were estimated at $15.5 million. After several assessments of
the building, including water intrusion and infrastructure
studies, the current estimate for all building repairs is
approximately $68 million, including $24.6 million spent to
date, and steadily rising. This is a $52.5 million increase
from the original estimate."
In 1993, BOE moved into the 450 N Street building as DGS's
tenant and claims that it has since had problems with water
intrusion. The windows have continued to pop open and require
replacement. In addition, mold accumulated inside the walls and
spread into the BOE office space. Many BOE workers have
complained of health and safety issues. According to BOE, the
mold problem has resulted in approximately 75 workers'
compensation claims, one omnibus lawsuit, and over 40 civil
litigation cases against both DGS and BOE.
BOE has brought the mold problem to the attention of DGS, which
deems the 450 N Street building repairable and habitable;
consequently, BOE is fiscally liable for the estimated $68
million in repairs in addition to their annual rent of $10
million.
DGS projects a different estimate of the 450 N Street building
repair costs; DGS states that $15.5 million has already been
spent for water intrusion repairs to the windows and $10 million
has been spent on mold remediation. They anticipate spending
another $8 million, for a total of $18 million, to complete mold
remediation by December 2010. BOE, however, lists an estimate
of $31.8 million for mold remediation repairs. DGS acknowledges
a substantial difference in estimates is due to the fact they do
not include BOE's estimate of $18.2 million for infrastructure
repairs because, it considers those routine expenditures. DGS
also states that repair requests can be submitted to the
Department of Finance (DOF) for additional funding.
Currently, DGS may look for another facility to house BOE staff,
but DGS needs legislative authority in order to find a new
AB 151
Page 3
tenant or dispose of the 450 N Street building. If BOE were to
exercise its option to move out of the 450 N Street building
today, BOE would still be obligated to pay DGS rent until DGS
finds a backfill tenant to occupy the building.
As a result of the increasing list of repairs that were not
anticipated at the signing of the initial lease agreement, DGS
has redirected BOE's mortgage payments towards repairs. This
means that while BOE pays $10 million a year for rent, $5.9
million of that amount goes towards paying bond debt (or
remediation); none of that is paid towards the interest that has
accrued on the 2006 loan. Meanwhile, BOE has outgrown the
building with 2,900 employees and moved a quarter of BOE staff
to a second temporary office.
In the meantime, DGS has been repairing the 450 N Street
building. After the initial discovery of mold, further
inspection revealed that the entire building was mold ridden.
DGS adopted a floor by floor method of systematically cleaning
the mold in the building. BOE staff who work on a floor that is
being cleaned are relocated to a "swing space," or another floor
that has been solely dedicated to temporarily housing displaced
BOE staff.
According to BOE, "As BOE is responsible for generating
one-third of the State's revenues, loss of productivity equals
lost revenue for the State. Based on the "swing space"
approach, BOE is estimating a loss of productivity of 111
personnel years at a cost of $8,325,000 in personnel costs
during the planned 18-month remediation period. As many of
these positions are revenue generating, BOE also estimates a
revenue loss to the State of California of $22 million due to
the workload disruptions."
BOE claims that even if it pays for all the revised maintenance
repair costs of mold removal, "the mold will not be fully
eliminated, but will continue to grow inside the walls and there
will be yearly maintenance requirements to contain the mold
inside the walls."
"Before DGS spends more money making repairs to the 450 N Street
building, state leaders should give very serious consideration
to a new headquarters building that would better suit the needs
of BOE, an agency that generates one-third of the state's
revenues. AB 151 would provide the BOE with adequate office
AB 151
Page 4
space in a new, consolidated location in the greater Sacramento
area that does not require paying significant costs for the
repair and maintenance."
Support . According to the sponsor, "As a tenant with no
ownership interest, BOE should not be responsible for paying the
extensive repairs needed for the State's 450 N Street building.
However, since 2005, BOE has been responsible for requesting
additional funding for the DOF or redirecting funds away from
both its operating budget and BOE's mission critical work to
fund the building repairs. Moreover, BOE has continued to pay
full rent for the space, including space unavailable due to
water intrusion and other infrastructure problems?The ideal
resolution for both BOE employees and the California taxpayers
is to permit BOE to move out of the 450 N Street building and
relocate to other premises without incurring the continuing cost
of rent on the vacated space."
According to the Service Employees International Union (SEIU),
Local 1000, "About one-third of the State's revenue or $53
billion is collected by the BOE employees?The cost to
repair/clean after the numerous incidents where water pipes
burst inside the building has come in around $14 million, not
counting the last incident that occurred on March 22, 2009.
Following that incident, six floors of the 24 story building had
to be vacated and the BOE had to relocate BOE Board Members and
their staff, part of the legal department, and the Tax Payer
Records Unit to other buildings because the conditions on those
floors were not safe for employees and equipment. Employees
have now returned to some of those floors even though there are
still problems."
REGISTERED SUPPORT / OPPOSITION :
Support
Board of Equalization (BOE) (sponsor)
California Taxpayers' Association
SEIU Local 1000
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301
AB 151
Page 5