BILL ANALYSIS
AB 151
Page 1
Date of Hearing: January 21, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 151 (Jones) - As Amended: September 10, 2009
Policy Committee: Business and
Professions Vote: 11-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill:
1)Authorizes the Department of General Services (DGS) to
investigate and negotiate the terms of a sale, lease, or
exchange of the Board of Equalization's (BOE's) headquarters
building in downtown Sacramento and to use the net proceeds of
the sale to acquire replacement facilities for the BOE.
2)Stipulates the DGS is not authorized to dispose of the
existing state building or to acquire replacement facilities.
FISCAL EFFECT
One-time costs of at least $250,000 if DGS were to conduct the
investigation and negotiations leading to a proposal for
legislative consideration to (1) sell the current state building
and (2) acquire replacement facilities for the BOE. (The bill
declares legislative intent that this work be funded out of the
BOE's operating budget for 2010-11.)
COMMENTS
1)History . In 1993, the DGS entered into a lease-purchase
agreement with CalPERS for the BOE's headquarters building,
located at 450 N Street in Sacramento. The BOE has
experienced ongoing problems with the building over several
years including water intrusion and, beginning in 1999,
failure of the curtain wall window system, where seven windows
fell onto the street or an adjacent apartment building over a
six-year period. Moreover, due to the water intrusion, in
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2007 mold was discovered on the top three floors, which 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 situation is ongoing.
In 2006, the state exercised a purchase option on the
building. A loan of $81 million was approved from the Pooled
Money Investment Account 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.
2)Purpose . Given the ongoing problems with its headquarters,
the BOE, which is sponsoring AB 151, 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 sites 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 are estimated to cost about $55
million and lost productivity and revenue will be $30 million,
for a total of $85 million.
The board further indicates that, while their staff has grown
to 2,900 employees, the building was designed to accommodate
only 2,200 personnel. The board is in the 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.
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
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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."
3)Most Cited Costs are Sunk Costs . Most of the repairs cited by
the board represent a sunk cost, and thus should have no
bearing on any cost analysis looking forward. According to
DGS, the curtain wall repairs ($15.5 million) are complete,
the mold remediation will be completed in 2010 at a total
estimated cost of about $27 million, and a $2.3 million
elevator modernization project that just commenced and will be
completed over the next two years. Additionally, the BOE's
estimated $8.3 million cost from productivity losses and $22
million in revenue generation losses should be mostly incurred
by the end of this year. Finally, the $10 million estimate
for future infrastructure repairs largely represents costs
that would normally be incurred on a building of this age, and
will likely be accomplished over several years.
4)Bill Appears to Go Beyond Mere Analysis . With respect to this
building, it seems that the most pertinent questions to be
answered are:
a) Should the state continue ownership of the 450 N Street
building or sell the building?
b) Given its current and projected staffing levels and
space needs, should the BOE remain at 450 N Street
(assuming continued state ownership) or should the board be
consolidated in facilities elsewhere within the Sacramento
region? (For example, would the board's operations be more
efficient in a campus-like facility, similar to that of the
Franchise Tax Board, rather than in a downtown highrise?)
c) If the BOE were to be relocated, what state entity or
entities should be relocated to 450 N Street?
Rather than seeking answers to the above questions, AB 151
authorizes DGS to not only investigate but also to negotiate
for sale or lease of the headquarters building and for
replacement facilities. This would appear to allow the
department to proceed all the way up to a point of signing
contracts, prior to obtaining subsequent statutory
authorization for an actual sale and new procurement. Such a
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process could leave the Legislature with, in essence, a fait
accompli role in what could be a decision involving up to
hundreds of millions of dollars of state funds.
5)Recommendation . The BOE's frustration with having to operate
in a problem-plagued building, and its desire to vacate that
building as soon as possible, is certainly understandable.
Decisions regarding state-owned office facilities have
long-term consequences and involve significant fiscal impacts,
however, and thus should be made in accordance with sound
analysis. This bill should be amended to instead require DGS
to address the questions outlined in (4) above and to report
back to the Legislature at a date certain. This analysis
could be funded through the Property Acquisition Law Account.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081