BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 1656 (Dickinson) - Department of General Services: Board of
Equalization Headquarters
Amended: August 5, 2014 Policy Vote: GO 10-0
Urgency: No Mandate: No
Hearing Date: August 11, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1656 would authorize the Department of General
Services (DGS), in consultation with the Board of Equalization
(BOE), to enter into agreements to acquire, construct, purchase,
lease-purchase, or lease-with an option to purchase, a facility
in the Sacramento area for purposes of consolidating and
relocating the BOE Headquarters operations.
Fiscal Impact:
DGS estimates costs of $3 million to develop and issue a
request for proposal and develop terms and conditions of an
agreement. The bill authorizes the use of funds from a loan
deposited into the Architecture Revolving Fund reserved for
repairs to BOE's headquarters building. Any amounts loaned
must be repaid from the BOE's operating funds within five
years from the date those funds were borrowed.
Increased state costs resulting from the procurement of
a new headquarters facility and relocation of BOE staff.
These costs are unknown, and would reflect a variety of
factors, but could reach the tens of millions of dollars
annually (General Fund and special funds, See Staff
comments).
Increased but unknown administrative efficiencies and
revenues resulting the consolidation of BOE staff (General
Fund and special funds).
Background: Under current law, DGS is authorized to perform
various functions with respect to state property, and also
authorizes the department to acquire title to real property in
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the name of the State, and to construct, lease, or transfer
state property, when authorized by the Legislature.
BOE is comprised of four elected members, one from each
equalization district, and the State Controller. Created in
1879 by a constitutional amendment, the BOE was initially
responsible for ensuring that county property tax assessment
practices were equal and uniform throughout California. Under
current existing law, BOE administers the following tax and fee
programs: sales and use tax, Bradley-Burns uniform local sales
and use tax, transactions and use tax, alcoholic beverage tax,
cigarette and tobacco products tax, motor vehicle fuel tax,
diesel fuel tax, interstate user tax, emergency telephone users
surcharge, energy resources surcharge, insurance tax (in part),
integrated waste management fee, natural gas surcharge,
childhood lead poisoning prevention fee, oil spill response and
prevention fee, underground storage tank maintenance fee, use
fuel tax, hazardous substances tax, California tire fee,
occupational lead poisoning prevention fee, marine invasive
species fee, electronic waste recycling fee, timber yield tax
and private railroad car tax. The BOE also assesses the
property of public utilities and common carriers, and provides
certain administrative and oversight functions with respect to
the local property tax. In addition, it adopts rules and
regulations to clarify tax laws, acts as an appellate body for
the review of property, business and income tax assessments,
assesses and allocates property values of railroads and
specified utilities, and oversees the property tax assessment
practices of all 58 counties. In fiscal year (FY) 2012-13,
BOE-administered taxes and fees produced $56 billion for
California, an increase of 6.8 percent from the previous year.
Of its $501 million 2012-13 budget, $287 million, or 57 percent,
came from the General Fund.
In 1992 DGS, on behalf of the State, entered into a 30-year
lease-purchase agreement to acquire the 24-story 610,000 square
foot property located at 450 N Street as a headquarters building
for BOE. CalPERS owned the building, and spent roughly $80
million to construct it. The State purchased the building from
CalPERS in 2006 with a loan Pooled Money Investment Board (PMIB)
for $81 million. In 2011, the state $92 million in issued
lease-revenue bonds to repay principal and interest on the PMIB
loan.
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Over the past twenty years, the building's troubles have been
continual, and include leaky windows, mold, glass panels that
dislodge from the exterior of the building with no warning and
shatter on the sidewalk, a colony of bats, malfunctioning
elevators, corroded pipes carrying wastewater from toilets and
sinks, and a broken fire system water pump, requiring
round-the-clock staff time to traverse the building is search of
potential fire hazards. BOE indicates that roughly $60 million
has been spent to date on building repairs and remediation.
In addition to defects at the 450 N Street building, BOE has
experienced staffing increases in recent years (largely the
result of legislative mandates and revenue collection and
enforcement efforts) such that the agency has outgrown the
building. Currently, BOE has four annex locations in the
greater-Sacramento area. Headquarter staff in its five locations
(including 450 N Street) total 3,150 persons. The 450 N Street
site is designed to house 2,200 employees. For all these
reasons, Board Members have voted in favor of relocating its
headquarters.
On March 12, 2014, the Joint Legislative Audit Committee
approved a request by Assemblymember Dickinson for the State
Auditor to audit the problems at the BOE building. The audit
will examine the cost of repairs made to the building to date.
The report is not expected to be released until September, after
the close of the current legislative session.
Proposed Law: This bill would authorize DGS, in consultation
with BOE, to enter into one or more agreements to acquire,
construct, purchase, lease-purchase, or lease with an option to
purchase, to provide usable office and related space in order to
consolidate the BOE headquarters operations into one single
location. Specifically, this bill would do the following:
Authorize DGS to enter into agreements for the planning,
design, construction, and acquisition of facilities in the
Sacramento region.
Require DGS to develop the terms and conditions of the
agreements no later than December 31, 2015.
Authorize DGS to solicit proposals for the sale,
exchange, lease, or rehabilitation of the 450 N Street
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property. The acquisition of a new facility and sale of
the existing 450 N Street property may be handled
separately or combined into one proposal.
Require DGS to notify the Legislature of the terms and
conditions of the proposed agreements at least 45 days
prior to executing the agreements.
Require that DGS be reimbursed for its costs associated
with entering into the agreement in an amount not to exceed
$3 million from a loan of funds that are deposited in the
Architecture Revolving Fund (ARF) for repairs to the BOE's
Headquarters building. Any amounts loaned shall be repaid
from the BOE's operating funds within five years from the
date those funds were borrowed.
Requires DGS to determine whether it is in the best
interest of the state to sell or lease the 450 N Street
property and report its findings to the Legislature.
After making the determination to sell, exchange, or
lease the 450 N Street property, requires DGS to make an
early payoff of the total outstanding bonds on the
property.
In order to facilitate the sale of the 450 N Street
property, DGS and the SPWB may borrow from the General Fund
an amount necessary to satisfy the total outstanding bonds.
Any amounts loaned shall be repaid from the sale proceeds
of the property.
The bill authorizes the State Public Works Board to
issue revenue bonds, negotiable notes, or negotiable bond
anticipation notes to finance the acquisition of the land
and facility for a new consolidated headquarters. The
bill authorizes the SPWB and DGS to borrow funds for
project costs from the Pooled Money Investment Account
(PMIA). In the event the bonds authorized are not sold,
the DGS is required to commit a sufficient amount of its
support appropriation to repay any loans made for the
project from the PMIA.
The bill authorizes the BOE to relocate its offices from
existing state-owned or state-leased facilities that no
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longer meets its needs without any obligation to pay rent
after vacating the premises.
Related Legislation: AB 151 (Jones) of 2010 would have required
DGS to conduct a study as to whether it is in the best interest
of the state to sell, lease, or exchange the BOE headquarters.
It authorized the sale, lease, or exchange thereof, based upon
the director's findings. It required DGS to investigate new land
and facilities for a BOE headquarters using the net proceeds of
the initial agreement. The bill granted BOE independent real
estate authority without DGS's involvement. The bill was vetoed
by the Governor.
Staff Comments: There is ample information indicating a
consolidation of BOE office space is an appropriate facilities
management decision. Regarding costs, the bill would authorize
DGS to spend up to $3 million for the planning, design,
construction, and acquisition of facilities for BOE's relocation
in the Sacramento region. DGS authorization would also extend to
agreements to acquire, construct, purchase, lease-purchase, or
entering into a lease with an option to purchase, office space
in the Sacramento region for the same purpose.
The total fiscal impact to the State of consolidating BOE into a
single new location would reflect a variety of factors.
Currently, the outstanding balance of the LR bonds that financed
the acquisition of the building is $77 million; BOE pays $11.9
million annually in debt service payments until 2020-21. If BOE
were to vacate the 450 N Street location, these debt-service
payments would need to continue, either (1) by placing another
tenant in the building, (2) retiring the bonds, or (3) making
annual appropriations (which could present legal problems if
payments are made with no tenant occupying the facility).
BOE has indicated that, if it were to remain at the 450 N Street
location, additional remediation costs would total $31 million.
BOE itself could avoid spending a large portion of these costs
if were to vacate the 450 N Street site; however, much of the
spending would still occur, for the purposes of either (1)
selling the building, or (2) refurbishing it in preparation of
occupancy by another tenant. It is noted, however, that if this
bill were not to be enacted, these remediation costs would
likely occur anyway, with BOE still occupying the building.
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BOE would incur new lease payments for the consolidated
location, likely in the tens of millions of dollars annually. It
would also incur moving and other relocation expenses it would
inhabit, offset somewhat by reduced costs and increased revenues
resulting from efficiencies in operation. Assuming
proportionality to BOE's current budget, 57 percent of the total
costs would come from the General Fund.