State looks at options on building expenses

Published 12:00 am Tuesday, February 18, 2014

RALEIGH — Some years ago, then-House Speaker Jim Black pushed an idea akin to so-called mortgage bullet payments to pay for new state buildings.
The state would have paid very little on the construction for 20 years, then had a note come due for the principal and most of the interest costs all at once.
The plan carried a strange acronym, REBITS. Fortunately, it croaked. The legislature never acted on it, and future taxpayers weren’t put on the hook for a buy-now, pay-later scheme to construct new buildings.
Nonetheless, the idea was born amid a serious problem.
As state revenue growth slowed in the early part of the last decade, state government had less money to pay for the repair and renovation of a growing inventory of state buildings.

A borrowing spree early in that decade, coupled with decisions by legislators to build a new psychiatric hospital, a cancer research center and the Green Square office building in Raleigh, eventually put the state up against a borrowing limit recommended by the state treasurer.
One of the consequences has been that a lot of older state buildings have become run down.
According to a recent report in the Triangle Business Journal, the legislature provided an annual average of $65.7 million for repair and renovation of state buildings between 2000 and 2010. The average moved up to $74.4 million since 2011.
The state’s building inventory, valued at $25.6 billion, calls for an annual repair and renovation budget of between $500 million and $1 billion based on industry standards.
In state government, that kind of spending probably has never happened and probably never will.
But the numbers suggest that the state is going to need to put more money into building repairs.

The Business Journal piece mentioned that state agencies were looking at leasing office space as a means to get out of crumbling buildings.
Figures posted by the State Property Office show the state is currently looking for 140,084 square feet of office space to lease in Wake County alone, although some of that may be related to office closings on the Dix Hospital campus.
Taxpayers ought to be wary of the talk. Leasing office space, in a lot of cases, does not represent very good bang for the buck for state government.
With the ability to borrow money cheaply, the state can typically buy a building over 20 years at a cost that is at least near athe mount that would have been spent on lease payments over the same period.
At the end of that 20-year financing period, the state and its taxpayers then own the building outright.
It can also finance major renovations cheaply.
When money is scarce and borrowing space is limited, pay-as-you-go leasing may look more attractive.
Twenty years later, taxpayers have nothing to show for it, and that lease is nearly as bad as a funky-sounding financing method that brings to mind frogs on a summer evening.

Scott Mooneyham writes about state government issues for Capitol Press Association.