BILL ANALYSIS
Bill No: SB
30
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 30 Author: Denham
As Introduced: December 2, 2008
Hearing Date: April 28, 2009
Consultant: Art Terzakis
SUBJECT
State Property
DESCRIPTION
SB 30 is an urgency measure that requires the Department of
General Services (DGS) to identify not less than $1 billion
worth of state property that can be sold immediately to pay
off outstanding general obligation bonds and help close the
budget deficit. SB 30 also requires state agencies
affected by the sale to determine the costs and benefits of
leasing back their existing space or finding new, more
cost-effective space.
EXISTING LAW
Existing law generally requires DGS to perform various
functions with respect to state property and provides for
the sale, lease, or transfer of surplus state property.
Existing law (Government Code Section 11011) requires the
Director of DGS to request authorization by the Legislature
prior to the disposition by sale or otherwise of state land
reported to it by a state agency as being in excess of its
foreseeable needs. Each state agency is required to
annually review proprietary state lands under its
jurisdiction to determine what lands are in excess of the
agency's foreseeable needs and to report to DGS.
This annual review of proprietary state lands does not
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apply to tax-deeded land, land held for highway purposes,
lands under the jurisdiction of the State Lands Commission,
land that has escheated to the state or that has been
distributed to the state by a court decree in estates of
deceased persons, and lands under the jurisdiction of the
State Coastal Conservancy. Jurisdiction of all land
reported as excess is transferred to DGS, when requested by
the Director of DGS, for sale or disposition under Section
11011 or as may otherwise be authorized by law.
Section 11011 of the Government Code provides criteria for
state agencies to use in determining and reporting to DGS
lands in excess of the agency's foreseeable needs. A state
agency is to include land not currently being utilized, or
currently being underutilized, for any existing or ongoing
program; land for which the agency has not identified any
specific utilization relative to future needs; and land not
identified by the agency within its master plan for
facility development.
Where applicable within its jurisdiction under Section
11011, DGS is responsible for determining if surplus land
is needed by any other state agency. Section 11011.1
requires the state to first offer surplus state real
property to local agencies, and next, to offer the property
to nonprofit affordable housing sponsors, as defined, prior
to offering the property to private entities. This section
of law also prescribes the procedure for local agencies and
nonprofit affordable housing sponsors to use to obtain the
surplus state
real property.
Existing law specifies that the Legislature may authorize a
particular surplus property be sold at less than fair
market value and provides that 30 days prior to executing
such a transaction, DGS must report to the chairs of the
fiscal committees of the Legislature the following
information: (a) the financial terms of the transaction;
(b) a comparison of fair market value for the property and
financial terms; (c) the basis for agreeing to terms and
conditions other than fair market value.
Proposition 60A of November 2004 (SCA 18, Johnson,
Resolution Chapter 103/04) which was adopted by the
electorate (73% margin) requires, among other things, that
the proceeds from the sale of surplus state property, with
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specified exceptions, be used to pay the principal and
interest on the Economic Recovery Bond Act of 2004.
BACKGROUND
State law requires most state agencies that own real
property to evaluate their holdings each year and to report
surplus property to DGS for disposal. The State considers
properties surplus when the agencies that own them no
longer use the sites (or do not use them fully) and have no
plans to use the sites in the future. DGS and the
Department of Transportation (Caltrans) are the primary
agencies responsible for disposing of most of the State's
excess property.
The Real Estate Services Division within DGS maintains the
Statewide Property Inventory which consists of an inventory
of all leased facilities managed by DGS and all state
holdings except for Caltrans holdings, highway operating
rights of way, airspace and certain State Lands Commission
listings for school lands. Caltrans maintains its own
surplus inventory.
Purpose of SB 30: The author's office indicates that
budget cuts and increased taxation are not the only way to
tackle the current budget deficit. The author's office
contends that if the state sold several high profile
properties (e.g., Los Angeles Memorial Coliseum and San
Quentin Prison) upwards of $1 billion could be brought into
the state's coffers to help offset the state's budget
deficit.
Staff Comments: As noted above, current law requires most
state agencies to evaluate their real property holdings
each year and to report surplus property to DGS for
disposal. In addition, the law requires DGS to offer
surplus properties first to other state agencies,
then to local government entities and finally to the
public.
This measure would go beyond property that meets the
current definition of "surplus" and instead requires DGS to
identify property that can be sold immediately. In order
to meet this requirement DGS would need to inventory all
state holdings to determine what is underutilized or fully
utilized and available for immediate marketing.
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As currently drafted, this measure may pose a problem in
light of the fact that it does not allow sufficient time
for a thorough review of the options or for a complete cost
benefit analysis. Prior to offering property up for sale,
the State must ensure that it is not selling now to achieve
short-term financial benefit, only to pay more in outlying
years. Because real estate transactions generally don't
occur immediately - the revenue goal of this bill may not
be met in a timely manner.
It should be noted that this measure is nearly identical to
SB 669 (Battin) of 2003 which passed out of this Committee
on a vote of 11-0. SB 669 was eventually placed on the
Senate Appropriations Committee suspense file and died.
California Environmental Quality Act (CEQA) Exemption: The
ability to get excess properties declared surplus by the
Legislature has been impeded these past few years by a
disagreement between the Legislature and the Administration
regarding the removal of a statutory exemption for the
State's surplus properties from the requirements of CEQA.
This disagreement has at least for now been resolved with
enactment of AB 8xx (Nestande), Chapter 6 of 2009-10 Second
Extraordinary Session, that places within the Government
Code an ongoing CEQA exemption for all properties declared
surplus by the Legislature.
Studies/Reports/Legislative Informational Hearings: Over
the past two decades various reports completed by the
Little Hoover Commission and the State Auditor have
detailed critical findings and problems associated with the
State's property management practices.
In January 2001, the State Auditor issued a report, titled
"The State's Real Property Assets: The State Has Identified
Surplus Real Property but Some of Its Property Management
Processes are Ineffective," which focused on state
agencies' handling of their excess real estate. Among
other things, the report found that:
The State lacks an effective process for evaluating
whether it needs the property it owns and for
identifying surplus.property
Few incentives exist for most landowning agencies
to actively identify and dispose of property that is
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surplus to their current and foreseeable program
needs.
Most property sales do not benefit the selling
agency because proceeds are required to be deposited
in the State's General Fund, thus there is little
incentive to report such properties surplus.
The report also suggested that:
The State could improve its real estate management
by implementing practices used by other government
entities. (The Auditor indicated that various state
governments and the federal government had implemented
diverse practices to meet the challenges of managing
real estate assets, including procedures for
identifying and disposing of surplus property.)
California officials could improve decisions about
surplus property by establishing an independent body
to review the processes and criteria for retaining
property and to arbitrate property retention
decisions.
Caltrans should make sure that staff list and
correctly categorize all surplus property in the
Caltrans' databases and explore alternative methods to
assist in the prompt identification and timely
disposition of its surplus property.
In 2004, Governor Schwarzenegger issued an Executive Order
(S-10-04) requiring agencies to help expedite the sale of
billions of dollars of surplus state properties - this
order was based primarily on findings of the California
Performance Review (CPR). Similar to the Auditor's 2001
report findings, the CPR concluded that the State's laws
and processes for identifying and selling underutilized and
surplus properties are ineffective resulting in delayed and
below market sales of such properties. The CPR report
recommended that the State's laws be amended and its
processes streamlined to increase property sales and
revenue to the State.
In May of 2008, the Senate Committee on Governmental
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Organization (Committee) held an informational hearing to
determine if the State effectively manages and utilizes its
real estate holdings, whether it has an accurate accounting
of its real property and whether current laws and processes
for selling surplus properties are effective and responsive
to changing economic needs. The Committee invited State
Auditor Elaine Howle to kick-off the hearing by identifying
issues still relevant in her January 2001 report. The
Committee also invited three of the state's largest
property owners - Caltrans, DGS and the University of
California (UC) - to participate in the hearing because of
their ownership of "high-profile" property holdings that
have been targeted for sale by the Schwarzenegger
Administration and legislators.
The Director of Caltrans, Will Kempton, told Committee
members that Caltrans had committed to dispose of 640
excess properties between July 2006 and December 2007, and
an additional 500 excess properties by December 31, 2008 -
a total of 1,140 parcels. The Director informed the
Committee that Caltrans had made significant progress on
meeting those commitments. Specifically, Caltrans had
disposed of 756 parcels, for a total of $1.83 million
between July 1, 2006 and March 31, 2008. The Director also
informed the Committee that Caltrans holds a large
inventory of parcels for several projects that have been
delayed for decades. Complex and sensitive local issues
surrounding these projects require resolution before final
property disposition can be utilized. The two largest
groups of parcels included in this list of "intractable"
properties are the 456 parcels held for the Interstate 710
(I-710) extension in Los Angeles County and the 463 parcels
held for the State Route 238 (SR-238) Hayward Bypass
project in Alameda County.
Allen Meacham, the Assistant Director of the Real Estate
Services Group of the Office of the President, UC Regents,
informed the Committee that as of June 30, 2007, UC owned
program-related real estate totaling approximately 112
million gsf of buildings, and approximately 35,000 acres of
land. Almost all of these buildings and most of this land
are located on the University's 10 campuses; the balance of
UC's land area consists largely of the various natural
reserves and agriculture experiment stations the UC
operates for research.
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Mr. Meacham told Committee members that UC acquires its
real estate by paying market value for it, and at times by
receiving it as a donation. At times the property received
by UC is subject to deed restrictions that limit the use of
the land to UC's mission, and provide that title shall
revert to the donor if the UC ever ceases to use the
property for its mission. Mr. Meacham also indicated that
the UC has a very long time horizon with respect to surplus
property due to the fact that history shows that campuses
start small and inevitably become so large that they run up
against their neighbors and must grow upward rather than
outward. The UC therefore does not consider vacant campus
land as surplus, but as a resource to be husbanded for
future generations of students.
Mr. Meacham concluded his testimony as follows, "Over the
last 3 fiscal years, the UC has sold a total of 11 surplus
properties, at an aggregate price of approximately $74
million. Currently, the UC has 4 properties that have been
declared surplus, and is in varying stages of preparing
them for sale. In all but 1 of these 15 cases, the
properties were located some distance from the campus.
Because they were distant from the campus, no other campus
unit was found to make use of the property, and it was
concluded to be surplus. Proceeds from the sale of a
surplus property are first applied to pay off any debt that
was incurred in its purchase, and that remains outstanding.
Otherwise, the proceeds from the sale typically remain
with the campus, and are often applied to purchase or
construct a replacement facility, or to endow the program
that occupied the surplus property prior to sale."
As a result of the Committee hearing, the State Auditor
decided to conduct a follow-up review and evaluate state
agencies' actions that responded to the original audit
report published in 2001, concentrating specifically on the
State's management of surplus property. The follow-up
report was released in late March 2009 and noted, among
other things, that "although DGS has implemented some of
the 2001 report's recommendations, it has not fully
implemented others." The Auditor also learned that
"although Caltrans has implemented or attempted to
implement most of the initial report's recommendations
there are still questions as to the reliability of some
fields within its database of surplus property." In
addition, the Auditor discovered that "because there is no
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entity with broad oversight of state property, the State
continues to lack assurance that its properties are being
carefully evaluated to identify when they are unused or
underused so that such properties can either be sold to
generate revenue or be put to better use." This was one of
the same fundamental concerns raised in the 2001 report.
PRIOR/RELATED LEGISLATION
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. The bill 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. AB 8xx
also provided expedited environmental permitting and CEQA
exemption for a list of 11 critical transportation
projects, as specified.
SB 760 (Aanestad) 2009-10 Session. Would authorize DGS to
sell, lease, exchange, or any combination thereof,
approximately 3.14 acres of real property in the City of
Red Bluff that is specifically declared not to be surplus
to the needs of the state, and, in return, to acquire up to
40,000 net square feet of usable office and related space
for consolidated administrative operations of the state.
(Pending in this Committee)
SB 586 (Yee) 2009-10 Session. An urgency measure that
would direct DGS, in consultation with the Department of
Food and Agriculture, to enter into negotiations to sell,
to any interested party, at fair market value, with certain
restrictions, a 13-acre parking lot portion of the
state-owned Cow Palace property, located in the County of
San Mateo and the City and County of San Francisco.
(Passed out of this committee on a vote of 11-1; currently
pending in Senate Environmental Quality Committee)
SB 256 (Aanestad) 2009-10 Session. Would authorize DGS to
sell, lease, exchange, or any combination thereof
approximately 1.69 acres of real property in the City of
Chico, currently used by the California Highway Patrol as
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its Chico area office, which is specifically declared not
to be surplus to the needs of the state. (Pending in this
Committee)
SB 178 (Aanestad) 2009-10 Session. Would authorize DGS to
sell, lease, exchange, or any combination thereof,
approximately 3 acres of real property in the City of
Redding, currently used by the Department of Forestry and
Fire Protection as its Shasta-Trinity Unit Headquarters,
that is specifically declared not to be surplus to the
needs of the state. (Pending in this Committee)
SB 136 (Huff) 2009-10 Session. Annual DGS surplus property
bill that authorizes DGS to dispose of three specified
parcels. (Pending in this Committee)
SB 29 (Denham) 2009-10 Session. Would mandate the sale of
land that the Los Angeles Memorial Coliseum and the Los
Angeles Memorial Sports Arena occupy, including the state's
share of the Sports Arena structure, and abolishes the Los
Angeles Memorial Coliseum Commission upon completion of
that sale. (Pending in this Committee)
SB 1681 (Battin) Chapter 532, Statutes of 2008. Among
other things, revised the conditions and procedures by
which DGS may dispose of surplus land to local agencies and
private entities and individuals.
SB 1527 (Yee) 2007-08 Session. Similar to SB 586 (Yee) of
2009. (Vetoed by Governor - message stated "this measure
circumvents the state's current competitive bid process and
would potentially limit the state's financial return for
the sale of state-owned land without creating any added
value for the surrounding community. By including the
first right of refusal provisions, this bill narrows the
range of options for the use of the property and places
the state at risk to receive less revenue than if the
property was offered to all interested parties through a
normal competitive bid process.")
SB 1133 (Denham) 2007-08 Session. Would have mandated the
sale of the parcel of land that the Coliseum and the Sports
Arena occupy, including the state's share of the Sports
Arena structure, and abolishes the Los Angeles Memorial
Coliseum Commission upon completion of that sale. (Failed
passage on Senate floor)
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SB 1060 (Ridley-Thomas) 2007-08 Session. Would have
abolished the Los Angeles Memorial Coliseum Commission
(LAMCC) and reorganized the administrative and management
structure for Exposition Park in Los Angeles by creating an
Exposition Park Authority consisting of 9-board members
responsible for managing and operating all state-owned
properties located in Exposition Park. Also, mandates that
the board sell the parcel that the Los Angeles Memorial
Sports Arena occupies. (Failed passage in Assembly policy
committee)
SB 282 (Cox) Chapter 293, Statutes of 2007. Established
the State Fair Leasing Authority, consisting of specified
representatives, for the purpose of entering into leases or
other agreements for the use of the State Fair (Cal-Expo)
Race Track or any other facilities owned or controlled by
the fair.
AB 2026 (Villines) Chapter 761, Statutes of 2008.
Authorized DGS to sell, exchange, or lease for fair market
value nine specified parcels deemed to be surplus to the
state's needs. Additionally, rescinded the surplus
authorization granted previously to DGS with respect to
seven specified parcels. Furthermore, exempted the State's
execution of a purchase and sales agreement from CEQA
however, the provisions made it explicit that in an "as is"
sale, the buyer or transferee will be subject to any local
governmental entitlement or land use approval requirements
including requisite CEQA provisions.
AB 1849 (De Vore) 2007-08 Session. Similar to SB 1133
(Denham) of 2008. (Failed passage in Assembly policy
committee)
AB 957 (Spitzer) Chapter 59, Statutes of 2008. Required
Caltrans to report to DGS its property holdings, including
excess lands, on July 1 of each year.
SB 625 (Battin) 2005-06 Session. Would have authorized DGS
to offer surplus land that is suitable for "economic
development" to local governmental agencies at fair market
value. (Held in Assembly policy committee)
SB 99 (Battin) 2005-06 Session. Would have established the
Commission on Asset Review and Divestiture to review
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biennially the inventory of all real property held by the
State. (Held in Senate Appropriations Committee)
AB 53 (Negrete McLeod) 2005-06 Session. The annual DGS
surplus property bill containing approximately 30 parcels
for disposal. (Died on Senate Inactive File)
AB 54 (Negrete McLeod) 2005-06 Session. The annual DGS
surplus property bill. (Vetoed by Governor because of
concerns over requiring DGS to initiate a CEQA process on
the properties identified prior to any sale, lease, or
exchange. The Governor stated that "such a provision could
potentially cost California taxpayers millions of
dollars.")
SB 1755 (Denham) 2003-04 Session. Would have required that
DGS ensure state agencies receive up to 15% of the sale of
state surplus real property as a one-time expenditure for
that agency subject to specified limitations and approval
by the Director of Finance, and would have provided with
certain exceptions, a reward of % of the sales price of
the surplus property, not to exceed $5,000, to the agency
employee(s) who first disclosed the availability of the
property. (Failed passage in this Committee)
SB 1750 (Battin) 2003-04 Session. Similar to SB 99
(Battin) of 2005-06. (Failed passage in this Committee)
SB 669 (Battin) 2003-04 Session. Would have required DGS
to identify $1 billion worth of state property that can be
sold immediately to help close the budget deficit. The
bill also would have required state agencies affected by
the sale to determine the costs and benefits of leasing
back their existing space or finding new, more
cost-effective space. (Passed out of this Committee on a
vote of 11-0; Died in Senate Appropriations Committee -
Suspense file)
SB 856 (Committee on Governmental Organization) Chapter
258, Statutes of 2003. The annual DGS surplus property
bill.
SB 1607 (Committee on Governmental Organization) Chapter
974, Statutes of 2002. The annual DGS surplus property
bill.
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SB 951 (Committee on Governmental Organization) Chapter
610, Statutes of 2001 . The annual DGS surplus property
bill.
SUPPORT: None on file as of April 24, 2009.
OPPOSE: None on file as of April 24, 2009.
FISCAL COMMITTEE: Senate Appropriations Committee
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