State-owned Leased Office Space
The Arizona Department of Administration (ADOA) is responsible for the allocation of space, operation, alteration, renovation, and security of its state-owned space in the Capitol Mall, Phoenix, Tucson, and Kingman.
A state agency using space in a building that is owned or leased to the state pays rent to ADOA for deposit to the Capital Outlay Stabilization Fund (COSF) or makes lease-purchase payments pursuant to A.R.S. §41-792.01, unless otherwise exempted by statute.
Vacating State-Owned Space
An agency may request to vacate its space in a state-owned facility. Before vacating space, an agency must contact BPS for advance planning. An agency will continue to accrue and to be obligated for its legislatively appropriated COSF rent and lease purchase payments, or the pro-rata amount based on occupancy, whichever is greater, until re-allocation of its space to another paying state agency tenant.
The ADOA General Accounting Office (GAO) calculates the agency lease-purchase payments. ADOA GAO transfers the entire amount of the rent assessed on each state agency from the agency account to COSF at the start of each fiscal year.
The lease-purchase payment for state agencies is the greater of the amount included in each agency’s annual operating budget, as reported by the staff of the Joint Legislative Budget Committee, or the pro-rata adjusted amount based on occupancy.
Lease-purchase payments do not include an operating cost component, such as utilities, routine maintenance, grounds services, operating supplies, janitorial services, and major maintenance (building renewal).
State agencies occupying ADOA-managed COSF facilities pay a rental fee for office space and/or storage space. ADOA invoices and collects an agency’s legislatively appropriated COSF rent or the pro-rata amount based on occupancy, whichever is greater, and deposits the rent into COSF at the beginning of each fiscal year or on an alternate payment schedule approved by the Joint Committee on Capital Review (JCCR).
The Lease Cost Review Board (LCRB) recommends to the ADOA director a rental rate charged to state agencies for using space in state-owned buildings. After recommendation by the ADOA director, JCCR determines the COSF rent rate for state agencies occupying state-owned buildings. The current rental rates are $13.08 for office space, and $4.74 for storage space. The rental fee authorized for state agencies occupying state-owned buildings is the greater of the amount included in each agency's annual operating budget as reported by the staff of the joint legislative budget committee or the pro rata adjusted amount based on actual occupancy.
The intent of COSF rent monies is to cover a majority of the costs associated with the operations of state-owned and -managed buildings, including lease-purchase facilities. These costs include utilities, routine repairs and maintenance, grounds services, janitorial services, operating supplies, and major maintenance (building renewal).
The COSF Dilemma
ADOA is responsible for the allocation of space, operation, alteration, renovation, maintenance, and security of certain buildings pursuant to A.R.S. § 41-791. ADOA manages or provides some type of operational support services to approximately 3.8 million GSF in the Capitol Mall, Phoenix Metro, Tucson, and Kingman areas, including office space, parking garages, mechanical structures, and special use facilities, including labs and computer data centers.
COSF is in a state of crisis generated by an array of problems, including: 1) ADOA collects COSF rent for only approximately 2.2 million square feet – far less square footage than COSF is supporting; 2) tenants in approximately 360,000 RSF directly benefit from COSF facilities operations services; however, are exempt from payment of COSF rents or even basic operating and maintenance costs; 3) 19 State agencies owning and operating structures separately from ADOA benefit from COSF appropriations for building renewal and new capital yet do not contribute to COSF revenues; 4) the methodology to establish COSF rent rates does not reflect standard building management practices - it merely supports a cash flow requirement; 5) appropriations exclusively from COSF will not stave off the negative effects of deferred maintenance; 6) some building’s lease -purchase debt service payments are appropriated from COSF even though the building is not a COSF contributor; and 7) COSF appropriations for building renewal are budgeted only after other expenditures are obligated, further promoting the vicious cycle of deferred maintenance.
It is necessary to re-evaluate COSF appropriations, as the present approach does not support full service operations and maintenance, fully fund a given fiscal year’s Building System Building Renewal Formula, address deferred maintenance, and other unsupported appropriations.
Capital Outlay Stabilization Fund (COSF):
A.R.S. §41-793 establishes COSF and allows ADOA to collect rents and tenant improvements charges from agencies occupying state-owned space.
Sometimes referred to as a “COP,” or Certificate of Participation, which is a financing mechanism.
Privatized Lease to Own (PLTO):
PLTO refers to a unique public – private financing arrangement used to design, construct, and manage three office buildings on the Capitol Mall located at 100 North 15th Avenue, 1100 West Washington, and 150 North 18th Avenue. PLTO structures do not contribute nor benefit from COSF monies as a tenant’s PLTO payments include the principle, interest, operations & maintenance, and major maintenance requirements, facilitating timely and appropriate “self-support” of routine operations and major maintenance requirements.