I’ve heard about privatizing government, but John Kasich is taking it to the extremes. If you’ve ever wanted to be the State’s landlord, John Kasich is going to give you that chance. Unfortunately, we won’t get the opportunity to evict him from the Governor’s Mansion since he won’t be living in it.
WBNS Channel 10 in Columbus reports that lawmakers are considering selling various State buildings, including both the Riffe Center and the Rhodes Tower to help plug the budget deficit. So, theoretically, we’re one Josh Mandel slip up from evicting the Republicans out of their State government buildings, at least.
Apparently, the Strickland Administration began studying the issue but the Governor put the idea on hold indefinitely months ago, but now the Kasich Administration is picking it up and saying its:
“something we’ll be looking at very, very closely."
The State would then lease back their old property from the buyer… this, somehow, saves the State money.
California, which is facing undoubtedly a much worse budget crisis than Ohio considered the same idea, but it’s non-partisan Legislative Analysts’ Office concluded that such an idea was really, really, really dumb:
We estimate that the sale of buildings would result in one-time revenue to the state of between $600 million and $1.4 billion, but that annual leasing costs would eventually exceed ownership costs by approximately $200 million. Over the lives of these buildings, we estimate the transaction would cost the state between $600 million and $1.5 billion.
In our view, taking on long-term obligations—like the lease payments on these buildings—in exchange for one-time revenue to pay for current services is bad budgeting practice as it simply shifts costs to future years. Therefore, we encourage the Legislature to strongly consider other budget alternatives.
Naturally, upon receiving this advice, you probably already knew that California still is trying to sell its buildings, even though the same legislative office also concluded that the deal the State is considering is the equivalent of a 35-year mortgage at an 10.2% interest rate.
Arizona did sell its State buildings and then leased them back. But really, is that a wise thing to model after?
Deals that would generate the targeted $735 million in revenue would mean state lease payments totaling $60 million to $70 million a year, according to budget analysts.
Over two decades, that would equate to at least $1.2 billion in lease payments. Once the leases had expired, the state would again take ownership of the properties.
Arizona sold its state buildings, including its state legislature building for $725 million. The State is supposedly paying it back at a 4.57% interest rate over twenty years. What’s the future value of $725 million at 4.57% discount rate in twenty years? Nearly $1.7 billion. According to all media accounts, the State is expected to spend slightly less than that in the lease payments over the twenty years. Still does it make budgetary sense to spend $1.2 billion over the next twenty years simply to be able to generate $725 million today?
That’s “one time” money, but comes with long-term costs. Where’s Arizona, which is still facing a budget crisis, going to come up with the money to make the lease payments? And once the State mortgages off its assets, how does it plan on having the funds next year for the spending the $725 million in financing proceeds covered this year?
If John Kasich is looking very, very closely at this, then he’s looking at the worst form of one-time money to try to balance Ohio’s budget. Seriously, how is this better than the State accepting federal stimulus money.
How does Kasich reconcile this with his frequent criticisms of Strickland using one-time money in his last budget?