Report 2014-108 Recommendation 5 Responses

Report 2014-108: State Board of Equalization Building: Despite Ongoing Health and Safety Concerns, the State Has Not Thoroughly Analyzed the Costs and Benefits of Relocating Employees (Release Date: September 2014)

Recommendation #5 To: General Services, Department of

To ensure that resources are spent wisely, General Services should seek the funding and approval needed to analyze whether keeping or selling the BOE building would be in the State's best financial interest. As part of that analysis, General Services should conduct, or contract for, appraisals to assess the value of the building with and without the repairs to determine whether making the repairs is in the best interest of the State. If continued ownership of the building appears to be prudent, General Services should evaluate potential productive uses for the building should BOE move to a new facility. General Services should report the results of its analysis to the Legislature no later than September 2015.

Annual Follow-Up Agency Response From March 2016

In February 2016, DGS completed and submitted to the Legislature its analysis conducted to determine whether keeping or selling the BOE building is in the state's best interest. As part of that analysis, DGS contracted with an appraisal firm to assess the value of the BOE building.

As reported to the Legislature, the appraisal results for the BOE Headquarters Building demonstrate that continued state ownership and occupancy, including completing the immediate repairs, is a sound financial decision. Further, the appraiser's economic analysis reveals that based on existing market rent levels, the highest and best use of the site is its current use as an office building; with the parking garage recommended to remain as an interim use until market conditions support additional development on the site's excess land.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

DGS is actively conducting an analysis to determine whether keeping or selling the BOE building is in the state's best interest. As part of that process, DGS contracted with an architectural and engineering services consulting firm to perform facility condition assessments of its Sacramento region state-owned building portfolio, including the BOE building. In a July 2015 report, BOE's building ranked 16 of 29 buildings based on the need for renovation, repair or replacement. The assessment results are providing critical information in valuing the asset as part of the appraisal discussed below.

In June 2015, as recommended by the State Auditor, DGS contracted with an appraisal firm to assess the value of the BOE building. The appraisal, which is in-progress, is a complex endeavor that includes valuing a high-rise building under various appraisal scenarios. Although not the sole source for a decision, the final appraisal report will contain information and value conclusions that are relevant in analyzing keeping or selling the building.

Currently, DGS estimates that the keep or sell analysis will be completed in February 2016.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

DGS has begun its analysis to determine whether keeping or selling the BOE building is in the state's best interest. As part of that process, DGS contracted with an architectural and engineering services consulting firm to perform facility condition assessments of its building portfolio, including the BOE building. The assessment process involves reviewing a facility's condition and validating special repair and recurring maintenance needs, as well as anticipating capital outlay requirements and identifying the useful life expectancy of each building system component and/or asset. The building assessments are being conducted as part of the development of a comprehensive long range plan for managing DGS' portfolio of office buildings. The plan is scheduled for completion by June 30, 2015.

The assessment results for the BOE building will provide critical information in valuing that asset under various appraisal scenarios. DGS has identified funding for the appraisal activity and is in the early stages of performing the appraisal contracting process, including developing a scope of work.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

DGS has begun its analysis to determine whether keeping or selling the BOE building is in the state's best interest. Specifically, DGS has contracted with an architectural and engineering services consulting firm to perform facility condition assessments of its building portfolio, including the BOE building. The assessment process involves reviewing a facility's condition and validating special repair and recurring maintenance needs, as well as anticipating capital outlay requirements and identifying the useful life expectancy of each building system component and/or asset. The assessment results for the BOE building will provide critical information in valuing that asset under various appraisal scenarios. The building assessments are expected to be completed in the first quarter of 2015. DGS has also initiated discussions with the Department of Finance to identify funding for the appraisal process.

In addition, if the state continues to own the 450 N Street building and BOE is approved to move to a new facility, DGS will fully evaluate potential uses for the building including backfilling the space with other state tenants.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2014-108

Agency responses received are posted verbatim.