While enough has been printed and shown on TV that most folks know how they feel about the charter school amendment, not as much has been presented on the second amendment. The language is vague at best:
“To provide for a reduction in the state’s operating costs by allowing the General Assembly to authorize certain state agencies to enter into multiyear rental agreements.”
Not everybody knows that presently the state cannot enter into multiyear lease arrangements so when property, such as offices, etc., are leased for state government, state agencies can only sign a one-year lease with renewals for each year in the future. This is tied to the state constitutional prohibition against state agencies obligating future legislatures.
Bonds, of course are the only authorized long-term spending. The State Properties Commission leases over 350 properties over 5,000 square feet yearly and asserts that since most are on a per square foot basis, lessors don’t give as good a rate because of the uncertainty of one-year renewals. The total annual rent paid out is about $100 million.
The constitutional amendment would authorize up to 20-year rental contracts, but they would not necessarily all be made for that length. Most leases presently are extended on average a little over 10 years one year at a time. The three agencies that would be authorized to enter into multiyear rentals under this amendment and a general law would be the State Properties Commission, the Board of Regents and the University System of Georgia.
SR 84, which contained the proposed constitutional amendment, passed the House 146-14 and the Senate 49-4. Because it was a constitutional amendment, two-thirds of each body must have voted yea on the resolution. It will still take a 50 percent plus one vote by voters to provide final approval.
The State Properties Commission commissioned a Leasing Practices Survey of the Public Sector study in 2007 to seek out what other states were doing with multi-year leases and general property rentals and to identify best practices. Only one state of the 19 respondents still prohibited multiyear leases and of the other AAA bond-rated states, nearly all have multi-year leasing as standard policy.
The Properties Commission lists several benefits if multi-year rentals are authorized:
• Improved real estate portfolio management
• State can compete more evenly in the changing real estate market
• Increased landlord interest might lead to more competitive lease offerings
• Gives the state the ability to negotiate possible rent abatements and tenant improvements with less upfront costs
• State budget projections are more accurate with more accurate rental projections
• There are no effects on AAA bond rating since each lease is subject to annual appropriation which is standard among states with multi-year leasing agreements
• For the Private Sector-there would be easier co-location of state facilities for state agency sites
• Increases possibilities for public-private partnerships
• Allows landlords ability to amortize upfront investments over longer period of time
• Would likely increase the number of interested landlords to bid on state leases
The Properties Commission estimates that the first-year savings of implementing multi-year leases would be $2.5 million with an estimated 10-year savings totaling an estimated $33.9 million. The Board of Regents pay annual rents of about $239 million and estimate first-year savings at $300,000 with 10-year savings estimated at $17 million.
I am really surprised this issue has not been addressed before now. It seems like basic business practices to me.
I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
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Reidsville office: (912) 557-3811