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Arizona Considers Selling Capitol Buildings
Things are so bad in Arizona that legislators are considering selling the House and Senate buildings where they've met and worked for more than 50 years. Dozens of other state properties may also be sold. The plan is to sell the properties and then lease them back over several years before assuming ownership again. "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." I bet they could get a great price on the Grand Canyon.
You don't live in Arizona do you? They've already cut everything they can. There's constitutional restrictions on what they can touch (direct voter mandates cannot be cut) and there's a lot of essentials that cutting will cripple the future of the state if they're cut any farther than they already have been (Education being the most commonly talked about one).
They're out of things to cut and any attempt to raise taxes has been shot out of the water by the legislature. The final compromise sends the tax hike to the voters so the legislature doesn't get their political hands dirty with it.
Should they have saved during the boom more than they did? Yes. Did Arizona save a lot during the boom? Actually yes it did but all of that savings only covered last year's deficit. Now savings is depleted and current tax revenues have fallen by double digit percentages but the population hasn't fallen by much (most areas are actually still growing) so basic services that the government is responsible for still need to be covered.
As is a lot of the state parks are now shut down because there's no money to pay for them. So don't knock the government here for doing everything in their power to fix the problem. At least we haven't had to send out IOU's like California yet.
There's a difference between patriotism and theft.
Look at the budget for the State of Arizona...for 2000, it was 27 billion, for 2009, it is 55 billion...
http://sunshinereview.org/index.php/Arizona_state_budget
Gov't spending is up 8% annually. Where the hell is the money going? Why do you want to raise taxes to double their current levels when people's paychecks have not gone up. Cut services... the state spending is out of control.
This is my sig.
OK, answers to your question:
(1) Yes, they do have to pay rent. Where will the rent come from? From the proceeds of selling the building.
(2) Yes, they want to buy it back, they will pay more for it than they got. The rent money they'll have sent will be gone forever.
(3) Yes, the state will end up losing money on this.
(4) No, it is not a BS accounting scheme, it's actually quite straightforward. It might be a bad financial decision. Or it might not.
You see, this is not about saving money. It's about having enough cash on hand to pay the bills. From a financial standpoint, it's a lot like taking a loan. Does it make sense to take a loan to buy a car, even though you end up spending a *lot* more? Sometimes yes, sometimes no. If you don't need the car, it doesn't make sense. If you have the cash on hand to buy the car without risking running out, it doesn't make sense to take the loan unless you've got really *excellent* investments. If you don't have the cash to buy a car, and you *need* a car to get a job, then the loan makes sense.
Does this make sense for a state? Well, the deal is you get cash up front but in the end pay a fee for the use of that cash, just like a loan. The alternative is to either (a) obtain more cash or (b) eliminate current cash outlays. In other words, raise taxes or cut spending.
If you raise taxes, you may delay the economic recovery in your state as businesses choose to relocate to places with lower taxes.
If you cut spending, you may store up problems like bridges that need to be replaced because they hadn't been painted; an increasingly ignorant and unemployable population; greater costs of fire, crime, and public health crises which are borne in an arbitrary way by random population members, which *also* cause businesses and people to relocate.
Now if you can find the cash you need by identifying *wasteful spending* that accomplishes absolutely nothing, then hallelujah! On the other hand, reducing spending on *useful* things isn't always a financial bargain.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
In Denmark the former tax minister Peter Brixtofte was mayor in the Farum municipality (he's apparently infamous enough to get his own Wiki page in English).
He implemented a similar scheme in Denmark (now called "Farummodellen"). If we ignore the fact that this was and still is against the law in Denmark, Farum municipality has ended up with the worst economy in any municipality in the country, despite the fact that it used to be one of the richest and most prosperous ones.
To give you an idea of the state it left them in:
In Denmark we have several types of taxes, the municipalities set two types: Municipaly/council tax and property tax. All non-calculated numbers below taken from here
And compare these two for two fairly close and I think fairly comparable municipalities:
In 1995 it was 17.30 and 0.60 percent respectively for Farum (sell and lease back)
In 1995 it was 19.20 and 0.88 percent respectively for Lyngby Taarbæk
In 2005 it was 22.80 and 1.80 percent respectively for Farum (sell and lease back) (total increase of 5.94%)
In 2005 it was 19.90 and 0.83 percent respectively for Lyngby Taarbæk (total increase of 0.54%)
Taxes doesn't tell the whole story of course. So let's look at expenses for the two, calculated pr resident:
In 1995 it was (Euro)4,256 for 17,835 residents in Farum (sell and lease back)
In 1995 it was (Euro)4,526 for 49,578 residents in Lyngby Taarbæk
In 2005 it was (Euro)8,949 for 18,662 residents in Farum (sell and lease back)
In 2005 it was (Euro)7,572 for 51,611 residents in Lyngby Taarbæk
So, an increase in expenses of 110% and an increase of 4.6% of the population for the sell and lease back municipality
And, an increase in expenses of 67% and an increase of 4.1% of the population for the other one
Now, I'll be honest and say that economics is tricky, and it doesn't get easier when you factor in Brixtofte's convictions for corruption and criminal breach of trust and the still unresolved main case against him partly involving the sale and lease back issues, but all in all it really really didn't pan out in Farum, despite the municipality getting a huge (Euro)268M subsidy paid out over 15 years from the government.
Even without looking elsewhere, think of it like this:
Government owned: expenses = Maintenance_g
Privately owned: expenses = Maintenance_p + profit
The only way that (maintenance_p + profit) < (maintenance_g) is if maintenance_p << maintenance_g, in which case you'll either end up with a horribly maintained building, possibly unsuitable for people to work in, OR you're paying low level government employees way too much. Last I checked that the latter has never been the case. When's the last time you heard someone say "I'll get a nice cozy government job - it pays a lot better"?