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Wednesday, July 29, 2009 12:44 PM


Arizona May Sell State Capitol Building To Balance Budget


Arizona, like many states is in dire financial straits. What's unique is Arizona's plan to help balance the state budget. Please consider 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.

"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."

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.

"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.

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.

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.

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.
You can only sell the Capital Building once.

It is disingenuous to suggest "better options are exhausted". The correct solution to this mess is to cut services, renegotiate union contracts, cut legislative wages, and eliminate ridiculously generous defined benefit pension plans.

Bear in mind, you can only sell the Capital Building once. Then what? Is anyone looking ahead?

"Corrections Director Charles Ryan wrote that a private operator would pay lower wages and provide less training."

In regards to training, especially in light of states cutting back everywhere, one can easily make a case that private enterprise will provide more training, not less. Moreover, government supervision and oversight of the operation might eliminate such concerns.

In regards to lower wages, Ryan is correct, but that is a very good thing not a bad one.

Eliminating services should always be the first choice, but for many essential services like prisons, garbage collection, even fire departments, privatization is the way to go.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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