BILL ANALYSIS �
AB 1656
Page 1
Date of Hearing: May 14, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1656 (Dickinson) - As Amended: March 28, 2014
Policy Committee:
AccountabilityVote:13-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill authorizes the Director of General Services (DGS) to
acquire office space in order to consolidate the operations of
the Board of Equalization (BOE) in the Sacramento Region.
Specifically, this bill:
1)Authorizes DGS, with consent of the BOE, to enter into a
lease, lease-purchase, or lease with an option to purchase to
consolidate the BOE into a single location.
2)Requires DGS to complete a site selection by June 30, 2015 and
to complete development of the terms and conditions of an
agreement by December 31, 2015.
3)Requires DGS to provide notice of the terms and conditions to
the Legislature's fiscal committees and the Joint Legislative
Budget Committee (JLBC) at least 45 days prior to executing
the agreement.
4)Requires DGS to determine whether it is in the state's best
interest to sell or lease the BOE's existing state-owned
building at 450 N Street in downtown Sacramento, and report on
the most cost effective option to the fiscal committees and
JLBC.
5)Authorizes DGS, if it determines per (4) that the state should
dispose of the property, to sell, lease or exchange the
property.
6)Stipulates that, upon sale of the property, DGS shall make an
early payoff of outstanding lease-revenue bonds.
AB 1656
Page 2
FISCAL EFFECT
1)A consolidated facility for the BOE would be around one
million gross square feet and cost in the range of $500
million, with occupancy in five to six years following
authorization. As this facility would likely be acquired under
a lease with a purchase option or a lease-purchase agreement,
payments would be made for 25-30 years through augmentations
to the BOE's operating budget.
2)DGS's one-time cost will be up to $3 million to complete an
acquisition agreement.
3)BOE would incur one-time moving costs in the low millions of
dollars.
4)If the state does not sell the current BOE headquarters
building and instead relocated other state tenants currently
in leased space, these agencies will incur significant
one-time moving costs, but over the long run should realize
ongoing savings related to occupying a state-owned, rather
than leased, facility.
COMMENTS
1)Background and Purpose . The board, which administers tax and
fee programs, is seeking to leave its current headquarters in
downtown Sacramento because of space constraints and various
ongoing building maintenance issues that have arisen since
moving to the location in 1993 under a lease-purchase
agreement. In 2006, the state exercised an early purchase
option on the building for about $80 million by issuing
lease-revenue bonds. The bonds are scheduled to be retired in
2021.
The current building was designed to house 2,200 employees,
but space is now needed for almost 3,000 employees. The board
has moved about a quarter of its headquarters operations to
four annexes in the Sacramento region, creating operating
inefficiencies and increases costs. Moreover, the BOE has
averaged personnel growth of almost three percent annually.
In addition to space constraints, the problem-plagued
headquarters building has had several issues that have
AB 1656
Page 3
required and still require extensive repairs. According to
BOE, the state has spent approximately $59 million thus far in
repairs. Issues have involved water intrusion, mold growth
that required extensive remediation, deficiencies with the
exterior wall window system, and the need to update several
building systems. BOE reports more problems have recently been
discovered and efforts to correct them are expected to cost an
additional $30 and $40 million over the next few years.
This bill authorizes the consolidation of BOE operations in a
new location and the disposition of the current headquarters
building if DGS finds that is the most cost-effective
approach.
2)Righting a Mistake . As a revenue collection agency processing
thousands of documents daily, the BOE probably never should
have been located in a downtown highrise building. As part of
the Supplemental Report to the 2012-13 Budget Act, DGS was
required to prepare a preliminary study for relocation and
consolidation of the BOE. In this report BOE acknowledges that
it "has planned for many years to streamline its business
operations into a horizontal movement of tax documents and
receipts through the scanning to destruction process from
station to contiguous station without being moved vertically
from floor to floor by courier." Essentially a similar
arrangement to that used by the Franchise Tax Board. Thus
relocation of the BOE to a low-rise facility makes business
sense.
3)Leasing Not a Long-Term Solution . The bill, in part, provides
authorization for DGS to lease facilities for the BOE. While a
straight lease provides the most flexibility to a tenant, in
the long run it is generally more beneficial for the state to
have ownership of its various headquarters operations.
4)Timeline Too Short . The bill provides DGS six months to
complete sight selection and 12 months total to develop terms
and conditions of a lease agreement. There is no need for two
separate deadlines, as the site selection would be part of the
lease criteria. The entire process, however, will take at
least 18 months upon appropriation of sufficient funds to DGS.
5)Auditor Study Pending . In March, the Joint Legislative Budget
Committee approved having the State Auditor examine the costs
to repair the 450 N Street building and the costs/benefits of
AB 1656
Page 4
consolidating the BOE. Unfortunately, this report is not
expected to be released until September, after the end of this
legislative session.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081