BILL ANALYSIS
Bill No: AB
151
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
AB 151 Author: Jones
As Amended: January 26, 2010
Hearing Date: June 22, 2010
Consultant: Art Terzakis
SUBJECT
Department of General Services: Sacramento office property
DESCRIPTION
AB 151 grants the Department of General Services (DGS) the
authority to investigate the potential terms of a sale,
exchange, or lease of the Board of Equalization (BOE)
headquarters building located in downtown Sacramento, at
450 N Street. Specifically, this measure:
1. Finds and declares that the state owns, within the City
of Sacramento, approximately 610,000 gross square feet of
office space, with improvements, on city blocks bounded
by "N" Street on the north, 5th Street on the East, "O"
Street on the south and 4th Street on the west that is
currently used by state offices, including the BOE.
2. Authorizes DGS to investigate the potential (a) terms
of a sale, exchange, lease, or any combination thereof,
of the current BOE headquarters building located at 450 N
Street in downtown Sacramento and (b) use of anticipated
net proceeds from that sale, exchange, or lease to
acquire the land and facilities necessary to serve as a
headquarters for the BOE.
3. Makes it explicit that DGS is not authorized to dispose
of the property or to acquire land and facilities.
4. Declares that it is the intent of the Legislature, in
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the 2010-11 Budget Act, to transfer operating funds from
the BOE to DGS to pay for DGS's actual costs for actions
taken pursuant to this measure.
EXISTING LAW
Existing law authorizes 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.
Existing law, (commencing with Section 14660 of the
Government Code) authorizes DGS to acquire, construct,
lease, or transfer state property, as specified, and when
specifically authorized by the Legislature.
Existing law 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.
Existing law (Government Code Section 14669) 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.
BACKGROUND
The BOE headquarters building located at 450 N Street is
owned by the State of California and has property
management services provided by DGS. The BOE is the single
tenant and pays rent as identified annually by the DGS to
occupy the building including any additional costs to
upgrade, operate, or fund other special repairs to the
building.
History: In 1993, DGS entered into a lease-purchase
agreement with CalPERS for the BOE headquarters building
located at 450 N Street in Sacramento and immediately began
experiencing water intrusion problems caused by heavy
rains.
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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
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.
Purpose of AB 151: 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
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Street building."
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 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
would provide the State with the following high-level
benefits:
A thorough review of the remaining repairs needed
at the 450 N Street building and their associated
costs.
Suggestions for addressing the debt service on the
building and repair costs.
Opportunities to partner with private sector
developers to address the short and long-term use of
the building.
Opportunities to sell the building or locate a
back-fill tenant.
Options to meet BOE's space needs with a facility
of the appropriate size.
Staff Comments: The BOE, DGS and the Department of Finance
expect an independent third party study to be completed by
the end of June that will address many of the issues raised
related to the 450 N Street building, such as:
What's the market value of the building?
What would it cost to sell?
Should the state sell it or fix it?
Does 450 N Street fit BOE's personnel needs?
What would it cost to move BOE to leased space and
leave 450 N Street vacant while it's being fixed?
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PRIOR/RELATED LEGISLATION
SB 1167 (Cogdill) 2009-10 Session. Would authorize DGS to
dispose of all or any portion of two parcels of real
property (the Veterinary Laboratory for the Department of
Food and Agriculture located in Fresno and the Department
of Motor Vehicles field office located in Roseville, Placer
County). (Pending in Assembly Policy Committee)
AB 22xxxx (Evans) Chapter 20, Statutes of 2009-10 Fourth
Extraordinary Session. Authorized DGS to: (1) sell the
Orange County Fairgrounds; (2) sell specified state-owned
office buildings and to enter into long-term leases for
those buildings with the option to buy back any of the
buildings; (3) enter into and approve "long-term" leases of
the state's real properties and determine terms and
conditions of such leases. Also, imposed additional
reporting requirements upon state agencies relative to
information that must be submitted to DGS pertaining to the
state's real property holdings and authorized a loan of not
more than $10 million from the General Fund to support the
management of the state's real property assets and any
extra workload.
SB 760 (Aanestad) Chapter 64, Statutes of 2009. Authorized
DGS to sell, lease or exchange specified state-owned real
property in the City of Red Bluff, that is specifically not
declared surplus to the State's needs, and use the proceeds
to acquire office and related space not to exceed 40,000
net square feet in the City, to consolidate various
departments and state agencies.
SB 256 (Aanestad) Chapter 572, Statutes of 2009.
Authorized DGS to sell, lease, exchange, or any combination
thereof, all or a portion of specified state-owned real
property in the City of Chico, that is specifically not
declared surplus to the State's needs, and is used by the
California Highway Patrol as its area office, in order to
relocate and expand the office.
SB 178 (Aanestad) Chapter 564, Statutes of 2009.
Authorized DGS to sell, lease or exchange approximately
three acres of state-owned real property located in the
City of Redding that is specifically not declared surplus
to the State's needs and is currently used by the
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Department of Forestry and Fire Protection for the purpose
of consolidating operations on or near the Redding Airport.
AB 8xx (Nestande) Chapter 6, Statutes of 2009-10 Second
Extraordinary Session. Among other things, exempted the
sale of surplus state real property made on an "as is"
basis from designated provisions of CEQA. Also, exempted
from those provisions of CEQA the execution of the purchase
and sale agreement or the exchange agreement for surplus
state real property if the disposition is not made on an
"as is" basis and the close of escrow is contingent on a
specified requirement or compliance with CEQA.
SUPPORT: As of June 18, 2010
State Board of Equalization (sponsor)
Service Employees International Union (SEIU)
OPPOSE: None on file as of June 18, 2010
FISCAL COMMITTEE: Senate Appropriations Committee
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