Concord State House Hotel?

[Lloyd Danforth]

 http://www.azcentral.com/news/election/azelections/articles/2009/07/29/20090729assets0729.html

Desperate state may sell Capitol buildings, others

Call it a sign of desperate times: Legislators are considering selling the House and Senate buildings where they've conducted state business for more than 50 years.

Dozens of other state properties also may be sold as the state government faces its worst financial crisis
in a generation, if not ever. The plan isn't to liquidate state assets, though.

Instead, officials hope to sell the properties and then lease them back over several years before assuming ownership again. The complex financial transaction would allow government services to continue without interruption while giving the state a fast infusion of as much as $735 million, according to Capitol projections.

For investors, the arrangement means long-term lease payments from a stable source.

Once any deals are approved, money could begin flowing into state coffers in as little as 90 days.

The plan has bipartisan backing, but that doesn't make the prospect of paying rent for buildings once owned free and clear by taxpayers any easier to swallow.

"We've mortgaged the legislative halls," said an exasperated state Rep. Steve Yarbrough, a Chandler Republican. "That just tells you how extraordinary the times are.

"To me, it's something we're going to have to do no matter how much we find it undesirable."

Last good option?

Earlier this month, Republican Gov. Jan Brewer vetoed such sale/leaseback provisions along with most of the rest of a fiscal 2010 state budget plan sent to her by the Legislature.

But the provisions are expected to return as part of a GOP-led legislative budget proposal surfacing this week. Although Brewer spokesman Paul Senseman called sale/leaseback deals "one of the governor's least favorite options," he conceded the likelihood that they'll play a key role in any plan to close a state shortfall estimated at $3.4 billion.

The state may have little choice. Reserves already have been drained, easier fiscal gimmicks are virtually tapped out, and there's no political will for spending cuts of the size and scope needed to close the deficit.

"This is the predicament we find ourselves in," said Tom Manos, a Brewer budget adviser. "We've exhausted the better options."

State properties now being considered for sale and leaseback include the House and Senate buildings, the Phoenix and Tucson headquarters of the Arizona Department of Public Safety, the State Hospital and the state fairgrounds, according to a document obtained by The Arizona Republic. Some prison facilities also are under consideration.

In total, the list comprises 32 properties that, if built from the ground up, come with a combined replacement value in excess of $1 billion.

The properties were chosen based on attractiveness to investors, buildings the state would be unlikely to walk away from, such as prisons or other facilities that provide essential government services.

Only one state property thus far is targeted for outright sale: the state Agricultural Laboratory in Phoenix.

'We need the money'

The state has conducted sale/leaseback deals in the past, though rarely.

This is different. Manos believes it would be the first time the state has sold and leased back state buildings with the intent of using the revenue to fund general operations rather than particular projects.

"We need the money," said Senate Minority Whip Linda Lopez, a Tucson Democrat. "You've got to find it somewhere."

Under the most recent legislative proposal, the state would seek a series of lease arrangements spanning as much as 20 years. Deals that would generate the targeted $735 million in revenue would mean state lease payments totaling $60 million to $70 million a year, according to budget analysts.

Over two decades, that would equate to at least $1.2 billion in lease payments. Once the leases had expired, the state would again take ownership of the properties.

House Majority Leader John McComish called the payments preferable to a tax increase, as proposed by Brewer, or alternative fiscal schemes such as selling future income from state Lottery sales in exchange for a lump-sum payment.

"What are our choices?" asked McComish, a Phoenix Republican. "We could cut more, or we could raise taxes more. Borrowing over the long term, we think, is better for the people, better for the economy."

Private prisons

While the state is looking to sell and lease back selected properties, it also may try to contract out the operations of some prisons. The concessions provision is expected to be included within the new budget proposal, and legislative analysts believe it could generate as much as $100 million (on top of the sale/leaseback revenue) for state coffers. Private, for-profit prison operators would bid for the right to manage selected facilities, but the state would maintain ownership.

The concept concerns prison officials, who worry whether a private operator would be equipped and trained to handle the state's most hardened criminals. In a letter to Brewer last month, Corrections Director Charles Ryan wrote that a private operator would pay lower wages and provide less training.

[Pat McCotter]

Are there pawnshops that dabble in government real estate?