After two decades in its defective high-rise headquarters and facing tens of millions of dollars in repairs and litigation, the state Board of Equalization should move, a new state audit concludes.
“We believe there could be a net fiscal benefit for the state to move BOE staff to a new facility,” state Auditor Elaine Howle said in a report released Thursday. She noted, however, that the tax agency’s case to leave is built on suspect cost assumptions and inflated staff-growth projections, not sound analysis.
The audit doesn’t make any assessment of what could be done with the 22-year-old structure, which has a history of water leaks, toxic mold, plunging elevators, corroded plumbing and falling exterior glass panels. The state’s landlord and real estate agent, the Department of General Services, has never assessed the property’s market value. Nor has it made plans for what to do with the tower if lawmakers approve moving the business- and excise-tax collecting agency to a new facility.
When auditors asked an assistant deputy director of General Services’ Real Estate Services Division why the state didn’t know the 24-story tower’s value, “he stated that it would be challenging for an appraiser to provide an accurate value because there are no comparable properties within the Sacramento region, given the building’s current condition,” the audit says. “We believe General Services should be more proactive in assessing whether the building should remain a part of the State’s property portfolio.”
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In a response to the audit, General Services Director Fred Klass said he agreed that his department should request funding and approvals to appraise the building and form a contingency plan should the tax agency leave.
“It’s safe to say we’re moving forward and working with BOE to determine what their facilities needs are,” General Services spokesman Brian Ferguson said.
The state bought the building for $89.8 million in 2006 and owes roughly $70 million to bondholders. The BOE lease payments service the debt on a schedule that pays it off in 2021. Taxpayers have spent more than $60 million to repair everything from leaking windows to toxic mold to unreliable elevators in the tower at 450 N St. in Sacramento. Employees have filed a $75 million lawsuit that claims working in the building has made them sick.
The BOE leaders have become increasingly vocal about wanting to leave the building but the agency hasn’t built a credible case, auditors concluded. Some of the BOE cost assumptions, for example, lack “a strong rationale,” auditors found, and staff-growth estimates – used to buttress its argument for larger facilities – appear inflated.
For example, auditors doubted the assertion that moving and consolidating operations with four satellite offices would boost annual productivity 5 percent, or $89 million. Their adjusted estimate: about $8.9 million.
The tax agency has argued for larger space based on estimates that it will add about 2,000 new positions over the next 15 years. Auditors rejected that projection because it was based on growth over the last five years, a period of heavy expansion. Auditors figure that’s at least 1,500 more than the department will add to its current stable of 4,500 workers.
Tax board member George Runner said that despite the gap between his department’s estimates and auditors’, “everybody agrees it’s a very bad building. It just shows owning buildings and taking care of buildings are not in the skill set of the state.”
The BOE is in the revenue-collection business, he said, not the real estate business.
“It’s not our core job, but we’ll roll up our sleeves and take another look at the costs,” Runner said.
During a Thursday morning news conference in front of the tower, Assemblyman Roger Dickinson, D-Sacramento, called the building “a disaster costing taxpayers millions of dollars. This building must go.”
Gov. Jerry Brown recently signed a Dickinson bill that puts into law the administration plan that requires General Services to assess state buildings in the Sacramento area and develop a plan for managing them by next July. Dickinson, who is running for state Senate, has said that should prompt more steps to move the tax agency into a new facility.