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State Board of

Equalization Building
Despite Ongoing Health and Safety Concerns, the
State Has Not Thoroughly Analyzed the Costs and
Benefts of Relocating Employees
Report 2014-108
September 2014
COMMITMENT
INTEGRITY
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Forcomplaintsofstateemployeemisconduct,contacttleCaliforniaStateAuditors
WlistleblowerHotline:.8oo.,,:.,66,.
Doug Cordiner Chief Deputy
Elaine M. Howle State Auditor
621 Capi t ol Mal l , Sui t e 1200 Sacr ament o, CA 95814 916. 445. 0255 916. 327. 0019 f ax www. audi t or. ca. gov
Septembera,ao ao-o8
TeGovernorofCalifornia
PresidentproTemporeoftheSenate
SpeakeroftheAssembly
StateCapitol
Sacramento,California,8
DearGovernorandLegislativeLeaders:
AsrequestedbytheJointLegislativeAuditCommittee,theCaliforniaStateAuditorpresentsthis
auditreportconcerningtheStateBoardofEqualization(BOE)headquartersbuildinglocated
ato NStreetindowntownSacramento(building).Specically,wewereaskedtoassessthe
eortsofBOEandtheCaliforniaDepartmentofGeneralServices(GeneralServices)toanalyze
thecostsofneededrepairstothebuilding,thepotentiallossofworkerproductivityandstate
taxrevenueduringrepairs,andthecostsandbenetsofcontinuingtohouseBOEheadquarters
employeesinthebuildingcomparedtomovingthemtoanewfacility.
TisreportconcludesthatBOEhasperformedorcommissionedseveralanalysesonthecosts
andbenetsofrelocatingitsheadquartersbuthasyettoprepareacohesive,properlysupported
analysis. Many of BOEs estimates and assumptions, including its claim that it could increase
state tax revenue collection by percent, do not have adequate support or rationale. After
expanding on BOEs analysis using much more conservative assumptions, we conclude that
movingBOEheadquarterstoanewfacilitymay,infact,havenetscalbenetsfortheState.
However,thesebenetswoulderodequicklyifGeneralServicesdoesnothaveaplaninplace
forthefutureuseordisposalofthebuilding.
DespiteitsresponsibilitytomanagetheStatesproperties,GeneralServiceshasnotprepareda
formalestimateforthecostofrepairsneededtoremediatethebuildingandhasnotanalyzedif
maintainingownershipinthebuildingisthemostcost-eectiveoptionfortheState,norwhat
todowiththebuildingifBOEisallowedtomovetoanewfacility.Withoutrmestimatesfor
thecostsofbuildingrepairs,themarketvalueofthebuilding,andpotentialusesforthebuilding
inthefuture,GeneralServicescannotadequatelyprovideinformationonwhatoptionsarein
thebestinterestoftheState.
Respectfullysubmitted,
ELAINEM.HOWLE,CPA
StateAuditor
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v California State Auditor Report 2014-108
September 2014
Contents
Summary 1
Introduction 5
Audit Results
The State Board of Equalization Cannot Support Elements of Its
Analysis ofthe Costs and Benets of a New Consolidated Facility 13
BOE Could Improve Its Methodology for Estimating How
Temporarily Relocating Employees Negatively Aects Worker
Productivity and State Revenues 18
By Overestimating Stang Growth, BOE Overstated the Problem
of Needing Additional Oce Space to Accommodate New Sta 21
Our Expanded Analysis Indicates the State Would Benet
Financially by Moving BOE to a Consolidated Facility 25
General Services and BOE Have Not Determined the Most
Cost-Eective Procurement Method for a New Consolidated Facility 26
General Services Should Proactively Evaluate Whether Continued
State Ownership of the Building Is a Sound Financial Decision 28
Recommendations 29
Responses to the Audit
California Government Operations Agency 31
State Board of Equalization 35
California State Auditors Comments on theResponse From
the State Board of Equalization 39
vi California State Auditor Report 2014-108
September 2014
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1 California State Auditor Report 2014-108
September 2014
Audit Highlights . . .
Our assessment of the State Board of
Equalizations (BOE) and the California
Department of General Services (General
Services) analysis of BOEs headquarters
building highlighted the following:
BOE has not yet prepared a cohesive,
properly supported analysis demonstrating
that the benets to the State of moving BOE
to a new facility outweigh the costs.
BOE sta believe that by mirroring the
Franchise Tax Boards (FTB) horizontal
movement of tax documents, it will achieve
gains similar to those it says FTB achieved,
but does not have a strong rationale
underlying its assumptions.
BOE cannot support some of its estimates
in its analysis of the costs and benets
of maintaining its current spatial
conguration versus relocating and
consolidating its headquarters.
Although it developed a methodology
to estimate the lost productivity from its
employees moving to, working at, and
moving back from a temporary work
location, BOE could not provide a strong
rationale to support its estimate.
BOEs estimate of its future space needs
relies on a projected annual growth rate
which appears to be overstated.
After we expanded on BOEs analysis using
additional components and much more
conservative assumptions, we believe there
could be a net scal benet for the State to
move BOE sta to a new facility.
Although General Services is responsible for
overseeing the use of state facilities, it has not
determined whether maintaining ownership
and repairing the BOE building is in the best
interest of the State and has no plans for
using or selling the building if BOE moves.
Summary
Results in Brief
TeStateBoardofEqualization(BOE)administerstaxprograms
concentratedinfourgeneralareas:salesandusetaxes,property
taxes,specialtaxes,andtletaxappellateprogram.Headquartered
intleSacramentoareainvelocations,BOElasoccupied
tlebuildinglocatedat(,oNStreetindowntownSacramento
(building)since,,.Afterinitiallyleasingtlebuildingfromtle
CaliforniaPublicEmployeesRetirementSystem,tleCalifornia
DepartmentofCeneralServices(CeneralServices)wasautlorized
bylegislationtopurclasetlebuildingin:oo6.Sinceatleast,,(
BOElasexperiencedmaintenanceproblemsintlebuilding,
includingwaterintrusion,visiblemold,corrosionindrainagepipes,
andspandrelglasspanelsfallingfromtlebuilding.
1
Asaresult,
CeneralServiceslasconductedseveralmajorrepairprojects,
amountingtorougllys6omillioninrepairsandupgradestotle
buildingasofFebruary:o(.However,continuedlealtlconcerns
associatedwitltlebuildingpromptedtlreeBOEemployeesin
August:o(toleaclassactionlawsuitagainsttleStatewitl
tleSacramentoCountySuperiorCourt,seekinguptos;,million
indamages.Since:o:BOEandCeneralServiceslavebeen
preparingforanotlerlargerepairproject,believedtototalrouglly
s(omillion.
BOElasperformedorcommissionedseveralanalysesontle
costsandbenetsofrelocatingandconsolidatingitsleadquarters
locations,butitlasnotyetpreparedacolesive,properlysupported
analysisdemonstratingtlattlebenetstotleStateofmoving
BOEtoanewfacilityoutweigltlecosts.Aspartofabusiness
caseitdevelopedin:o,BOEstatedtlatitanticipatesa , percent
improvementinproductivitybystreamliningitsbusiness
operations,potentiallyequatingtoanadditionals8,millionin
annualrevenuetlatenforcementpersonnelsuclasauditorsand
collectorswouldgenerate.BOEstabelievetlatbymirroring
tleFrancliseTaxBoards(FTB)lorizontalmovementoftax
documentsratlertlanitscurrentpracticeofmovingdocuments
verticallyamongtlebuildingsmultipleoorsitwillaclieve
gainssimilartotloseitsaysFTBaclievedwlenitmovedtoits
currentlocation.Ifactuallyrealized,tlisadditionalrevenuewould
dwarfanymarginaldierencesbetweentlecoststomaintain
BOEscurrentworkspaceandtlecoststoleaseanewfacility.
However,BOEstawereunabletoprovideuswitldocumentation
orassertionsfromFTBtlatsuclanincreaseinproductivity
1
Spandrel glass is an architectural material used to cover construction materials, disguise arches
and columns, and present a seamless exterior to buildings.
California State Auditor Report 2014-108
September 2014
2
actuallyoccurredwlenFTBmoved.Furtler,altlouglBOEis
planningtolireavendortoperformastudy,itlasnotanalyzed
itsowntaxdocumentprocessingtodeterminewletleritcould
increaseproductivitybyconsolidatingitsleadquarters,despitea
:ooconsultantreportrecommendingtlatBOEperformsuclan
analysis.Witloutastrongrationaleunderlyingitsassumptions,
BOEcannotclearlydemonstratetlevalidityofitsclaimtlat
relocatingandconsolidatingitsleadquartersoperationswould
resultinadditionalrevenuetotleState.
BOEalsocannotsupportcriticalcomponentsofaninternally
developedanalysisoftlecostsandbenetsofmaintainingits
currentspatialcongurationversusrelocatingandconsolidating
itsleadquarters.Specically,BOEcannotsupportsomeofitscost
estimates,suclastlemontllyleaseratesfortemporaryspaceand
foranewconsolidatedfacility.UnderBOEsassumptions,itappears
tleStatewouldbenetfromemptyingtlebuildingandpermanently
relocatingBOEleadquartersstatoanewconsolidatedfacility.
However,mostoftlisbenetisderivedfromBOEsassumption
tlatremediatinganemptybuildingwouldcosts:omillionlesstlan
emptyingandremediatingonlyafewoorsatatime.Altlougl
CeneralServicesagreedwitltlisconcept,itwouldnotmakea
blanketstatementtlatsuclalargereductionincostswouldoccur.
BOEalsoanalyzedotleraspectsrelatedtoconsolidatingits
leadquartersstaatanewfacility,suclastlelossofproductivity
andstaterevenuesfromtemporarilymovingemployeeswlile
repairsareconductedandtleneedformorespacetoaccommodate
potentialfuturestanggrowtl.Altlouglitdevelopeda
metlodologytoestimatetlelostproductivityfromitsemployees
movingto,workingat,andmovingbackfromatemporarywork
location,BOEcouldnotprovidedocumentationorastrong
rationaletosupportitsestimateof8oloursoflostproductivity
peremployee.BOEalsoestimatedtlestaterevenuesitsemployees
wouldnotcollectwlilemovingto,workingat,andmovingback
fromatemporaryworklocation,butitcouldnotsubstantiatea
keygureanestimateoftleamountofstaterevenuelostper
employee.Finally,BOElasdonesomeplanningtoestimateits
futurespaceneeds,andaspartoftlatplanning,itreliedona
projectedannualgrowtlrateinitsstangofpercent.However,
ourreviewofitstotallledpositionsfoundtlatBOEsaverage
annualgrowtlratelasbeenlesstlan percentovertlepast
:o years.Byoverstatingitsstanggrowtl,BOElasoverstatedits
needforfutureocespacetoaccommodatenew sta.
BecauseBOEsanalysesincludedseveralassumptionstlatdonot
laveadequatesupportorrationale,weperformedanexpanded
analysistlatincludedadditionalcomponentsandusedmore
conservativeassumptionsforcertainelements.Forexample,
3 California State Auditor Report 2014-108
September 2014
becauseBOEcouldnotsupportitsestimatedproductivitygainof
,percentaftermovingtoanewconsolidatedfacility,wetrimmed
tliscomponentoftleanalysistoone-tentlofBOEsexpected
productivitygains.WealsolalvedBOEsestimatedreductionintle
costsofremediatinganemptybuilding,andwelalveditsestimated
productivityandrevenuelossesfrommovingstaonlyonce
duringaconsolidation.Afterproducingamuclmoreconservative
estimate,westillbelievetlerecouldbeanetscalbenetfortle
StatetomoveBOEstatoanewfacilitysotlebuildingcanbe
remediatedwlileemptyofallitsemployees.However,webelieve
anynetscalbenetswillquicklyerodeiftleStatecannotsellor
ndaproductiveusefortlebuildingafteritlasbeenremediated.
CeneralServicesisresponsibleforoverseeingtleuseofstate
facilities,lowever,itlasnotdeterminedwletlermaintaining
ownerslipandrepairingtleBOEbuildingisintlebestinterestof
tleState,anditlasnotmadeplansforusingorsellingtlebuilding
slouldBOEbeallowedtomovetoanewfacility.CeneralServices
lasresponsibilityinstatuteformaintainingstatebuildingsand
propertyandalsoformakingtlenaldeterminationontleuseof
existingstate-ownedfacilities.Asstatedearlier,BOEandCeneral
Serviceslavebeenpreparingtomakekeyrepairstotlebuilding
andaccordingtoocialsatCeneralServices,representativesfrom
tradeandmanufacturersassociationsindicatedtlatconstruction
associatedwitltlefailingcomponentsintlebuildingmaycost
rougllys(omillion.CeneralServicesocialsstatedtlattlis
gurecouldclangeoncetleprojectscopeisnalized.Additionally,
tleStatecouldfacepotentiallysignicantlegalandworkers
compensationcostsassociatedwitltlelealtlconcernsintle
building,basedoncurrentandpastlitigation.Civenitsbroad
statutoryautlority,wewouldexpectCeneralServicestobemore
proactiveindeterminingtlevalueoftlebuildingandcomparing
tlatvalueagainsttlerepairandpotentiallegalcostsassociated
witltlebuildingtodeterminewletleritslouldremainapartof
tleStatespropertyportfolio.
Recommendations
Tomoreclearlydemonstrateitscaseforanewfacility,BOEslould
dotlefollowing:
Ensuretlatitlasasupportablerationalefortleassumptions
underlyingitsanalysisoftlecostsandbenetsofmovingtoa
newconsolidatedfacility.
Continueitsplansforastudytoidentifyinecienciesinits
currentspatialcongurationandlowitsoperationscould
improvewitlanewconsolidatedfacility.
California State Auditor Report 2014-108
September 2014
4
Incorporatestanggrowtlintoitsanalysisofcostsandbenets,
usingprojectionsbasedonlong-termlistoricaldata.
Toensuretlatitcanaccuratelyestimateanysliftsinworker
productivityandstaterevenue,BOEslouldstrengtlenitscurrent
metlodologybyanalyzingtleproductivityandrevenuecollections
ofitsemployeesandbymonitoringtlosemetricsatleast
semiannually.Additionally,BOEslouldsupportitsmetlodology
witldocumentation.
Toensuretlatresourcesarespentwisely,CeneralServicesslould
seektlefundingandapprovalneededtoanalyzewletlerkeeping
orsellingtleBOEbuildingwouldbeintleStatesbestnancial
interest.Aspartoftlatanalysis,CeneralServicesslouldconduct,
orcontractfor,appraisalstoassesstlevalueoftlebuildingwitl
andwitlouttlerepairstodeterminewletlermakingtlerepairs
isintlebestinterestoftleState.Ifcontinuedownerslipoftle
buildingappearstobeprudent,CeneralServicesslouldevaluate
potentialproductiveusesfortlebuildingslouldBOEmoveto
anewfacility.CeneralServicesslouldreporttleresultsofits
analysistotleLegislaturenolatertlanSeptember:o,.
Agency Comments
BOEandCeneralServicesindicatedtlattleyplantoimplement
ourrecommendations.
5 California State Auditor Report 2014-108
September 2014
Introduction
Background
WitlleadquartersinSacramento,over:oeldoceslocated
tlrouglouttleState,andtlreeout-of-stateoces,tleStateBoard
ofEqualization(BOE)administerstaxprogramsconcentrated
infourgeneralareas:salesandusetaxes,propertytaxes,special
taxes,andtletaxappellateprogram.Since,,BOElasoccupied
tlebuildinglocatedat(,oNStreetindowntownSacramento
(building),wliclisitsmainleadquarterslocation.However,
spacelimitationsintlebuildingrequireBOEtolousesomeofits
leadquartersemployeesatfourotlerlocationsintleSacramento
region,asslowninFigure.Initiallyleasingtlebuildingfrom
tle CaliforniaPublicEmployeesRetirementSystem(CalPERS), tle
CaliforniaDepartmentofCeneralServices(CeneralServices)
purclasedtlebuildingfromCalPERSafter:oo6legislation
autlorizedittodoso.
Figure 1
State Board of Equalization Headquarters Locations in the Sacramento Region
Sources: State Board of Equalizations lease data and business directory and the California Department of General Services report titled Relocation
and Consolidation Preliminary Study: Board of Equalization issued on June 28, 2013, and amended August 15, 2013.
Note: The authorized positions given per location are as of July 1, 2014.
6 California State Auditor Report 2014-108
September 2014
AccordingtoatimelineBOEprovided,maintenanceproblems
lavebeenanongoingconcernwitltlebuildingsinceatleast
,,(,alittleoverayearafteritwasconstructed.Sincetlentle
buildinglasladproblemswitlwaterintrusion,visiblemold,
corrosionindrainagepipes,andspandrelglasspanelsfallingfrom
tlebuilding.
2
Figure:slowsexamplesoftlemoldandcorroded
drainagepipesintlebuilding.Healtlconcernsassociatedwitltle
buildingproblemspromptedtlreeBOEemployeesinAugust:o(
toleaclassactionlawsuitagainsttleStatewitltleSacramento
CountySuperiorCourt,seekinguptos;, millionindamages.Te
employeesallegedlysueredfromvariousmedicalconditions,
suclasskinrasles,respiratoryproblems,ulikesymptoms,
depression,leadacles,andotlerseriouslealtlissues,asaresult
ofbeingexposedtomoldandtoxicmaterials.Additionally,a:oo,
infrastructurestudyconductedattlerequestofCeneralServices
liglligltedotlerproblems,suclasstructural,electrical,and
meclanicalconcerns.
Figure 2
Visible Mold and Corroded Drainage Pipes in the State Board of Equalization Building
Sources: Photographs by Hygiene Technologies International, Inc., and the California Department of General Services building manager.
Note: Visible mold (left) and corroded drainage pipes (right).
2
Spandrel glass is an architectural material used to cover construction materials, disguise arches
and columns, and present a seamless exterior to buildings.
7 California State Auditor Report 2014-108
September 2014
Past and Planned Remediation of the Building
CeneralServicesbeganamajorprojectin:oo,torepairseals
aroundwindowsintleBOEbuilding.Duringtleproject,tle
contractortlatCeneralServicesselectedfocusedonremovingand
examiningtlespandrelglassedgesfordefectsandtlenreplacing
tlem.Additionally,tlecontractorsealedalloftleglasstoaddress
waterintrusion.InaSeptember:oo;quarterlystatusreporttotle
Legislature,CeneralServicesreportedtlattlerepairprojectlad
experienceddelaysbecausemoldwasdiscoveredintlebuilding.Asa
result,BOErelocateditsemployeesfromtwooorsandtlenlimited
accesstotloseoorstoconstructionstaworkingonremediating
tleproblem.InNovember:oo8CeneralServicesnotiedBOE
tlatallremediationandreconstructionactivitiesontlevacant
oorswerecompleteandtlattleycouldbereoccupied.From:oo,
tlrougl:o,BOEsliftedemployeestovacantoorssotlatCeneral
Servicescouldperformmoldremediationtlrouglouttlebuilding.
)ustastleoor-by-oormoldremediationworkwascompleted,
BOEreportedtlatin)anuary:o:aspandrelglasspanelfellfrom tle
building,promptingCeneralServicestoerectscaoldingaround
tle building.Figureontlefollowingpageslowsanexampleoftle
spandrelglasspanels.BOEestimatestlattleStatelasspentalmost
s6omillioninremediationandmodernizationcostsfortlebuilding
asofFebruary :o(.BOEalsoestimatestlatitlasspents:million
tosettlecivilclaimsands:.millioninattorneyfeesassociatedwitl
workerscompensationclaimsledbecauseofperceivedlealtl
issuesrelatedtotlebuilding.CeneralServicesspentanadditional
s.: millioninattorneyfeesinresponsetotlesesameclaims.
Since:o:BOEandCeneralServiceslavebeenpreparing
foranotlerlargerepairproject.InAugust:o:tleCalifornia
DepartmentofFinance(Finance)autlorizeds.;milliontoreplace
tlespandrelpanelsattleBOEbuilding.Inlate:o:andearly :o,
CeneralServicesbeganplanninganadditionalrepairproject
relatedtoplumbingintlebuilding.Astlespandrelpanelplanning
proceeded,CeneralServicescostestimatesnearlydoubled,
froms.;milliontos6.,million.Finally,inFebruary:o(BOE
requestedandCeneralServicesagreedtoclangetlerepairproject
toincludeallrequiredrepairs,includingrepairstotleplumbing
andtleleating,ventilation,andairconditioningsystemaswell
asupgradework,insteadofonlyreplacingtlespandrelpanels.
WediscusstlisprojectfurtlerintleAuditResultssectionoftlis
report.Accordingtoacapitaloutlayprogrammanager(capital
outlaymanager)initsprojectmanagementanddevelopment
brancl,CeneralServiceslasreceivedautlorizationfromFinance
toselectaconsultantwlowillberesponsibleforassistingCeneral
Services,inconsultationwitlBOEandFinance,inpreparingtle
designdrawingsfortlerepairs,wliclwouldbecometlebasisof
tlescopeofworkfortleexpandedrepairproject.
8 California State Auditor Report 2014-108
September 2014
Figure 3
Spandrel Glass Panels on the State Board of Equalization Building
Spandrel glass is an architectural material used to cover construction materials,
disguise arches, and present a seamless exterior to buildings. The tinted spandrel
glass is outlined in red.
Sources: California State Auditors photograph of the State Board of Equalizations headquarters building at 450 N Street and January 2012 Glass
Breakage Report by McGinnis Chen Associates Inc.
Departments Involved With BOEs Attempts to Obtain a New Facility
Sinceatleast:ooBOElasexpressedadesiretorelocate
itsleadquartersfromtleBOEbuildingtoanewfacilityand
consolidateitsleadquartersemployeesinonelocation.According
totlecapitaloutlaymanager,CeneralServicesisnotresponsible
forproactivelydeterminingtlecost-eectivenessofconsolidating
BOEinanewfacility,instead,tlatresponsibilitylieswitlBOE.
Additionally,accordingtoitsdeputysecretaryforlegal,tle
CaliforniaCovernmentOperationsAgencywlicllasoversiglt
responsibilityforCeneralServicesisnotresponsiblefor
conductingacost-benetanalysisforBOEcomparingtlecosts
ofmaintainingtlecurrentspatialcongurationwitltlecostsof
consolidatinginonefacility,ratler,itdeferstoBOEtoprovidetlis
information.In:ooBOEcommissionedaconsultantgroupof
universityprofessorstoanalyzetlenetscalimpacttotleState
anddeveloprecommendationsontlebestscalcourseofaction
regardingtleBOEbuilding.Concurrently,AssemblyBill ,
supportedbyBOEwouldlaveallowedBOEtopermanentlymove
outoftlebuildingandleaseanewpropertyiftletransitionwas
cost-benecialtotleStatesCeneralFund,lowever,tlisbillwas
9 California State Auditor Report 2014-108
September 2014
vetoedbytlegovernorinpartbecauseoftleStatesscalcondition
attle time.Morerecently,BOEstatedina:oreportCeneral
Servicespreparedtlatitsbusinessneedsrequiretlatitconsolidate
itsleadquarterslocations.
Variousstateentitieswouldbeinvolvedintleeorttorelocate
BOE.AccordingtotleState Administrative Manual,eaclof
tlefollowingentitiesmayperformkeyrolesincarryingoutan
infrastructureprogramsuclasanewBOEleadquartersfacility:
Client department (in this case, BOE):Identiesprogramneeds,
determinestlerelatedinfrastructurerequirements,preparesa
ve-yearcapitalizedassetsplan,preparescapitaloutlaybudget
clangeproposals,workswitlFinanceandCeneralServicesto
budgetandimplementtleplan,andmayworkwitltlePooled
MoneyInvestmentBoard(InvestmentBoard)andtleCalifornia
StateTreasurer(treasurer)toprovideinterimandlong-term
nancingfortleproject.
General Services: Hasbroadautlorityforrealpropertyacquisition,
sales,andstatewidepropertyinventory.ItsRealEstateServices
Divisionprovidesrealestateandpropertymanagementservices,
suclasmanagingtledesignandconstructionofmajorcapital
outlayandleasingprojects andmanaging,maintaining,and
operatingstatebuildingsand grounds.
Finance:Reviewscapitaloutlaybudgetclangeproposalsand
legislationproposingcapitaloutlayprojectsandcapitalized
leases,mayadjusttlescopeofprojectssubjecttolegislative
reportingrequirements,clairsandprovidesstatotleState
PublicWorksBoard(PublicWorksBoard)initsoversigltof
projectimplementation,andlasdelegatedautlorityfromtle
PublicWorksBoardtocarryoutcertainboardtasks.
Public Works Board: AcquirespropertyfortleState,approves
preliminaryplansforcapitalprojects,maysetconditionsforany
project,andautlorizesinterimnancingtoconstructfacilities.
Investment Board: MaygrantrequestsforPooledMoney
InvestmentAccountloansforprojectsneedinginterimnancing
beforebondsaresold.
Treasurer: ClairstleInvestmentBoard,isamemberontle
PublicWorksBoard,andistleStatesocialagentfortlesaleof
debtinstruments.
TeLegislaturepassedabilltlatwasrecentlysignedintolaw
bytlegovernor,wliclrequiresCeneralServicestocompletea
long-rangeplanningstudyofstateocebuildingsinSacramento
10 California State Auditor Report 2014-108
September 2014
CountyandtlecityofWestSacramento.Aspartoftleplanning
study,tlelegislationrequiresCeneralServicestoevaluatevarious
aspectsofstate-ownedocebuildings,includingcondition,age,
buildinguse,andanymajorrepairsorrenovationstocorrect
deciencies,anditspecicallyrequiresCeneralServicestoinclude
tleBOEleadquartersintlisstudy.Accordingtotlenewlaw,
CeneralServicesmustcompletetlestudynolatertlan)uly,:o,.
Inaddition,tleLegislatureappropriateds:.,milliontoCeneral
ServicesintleBudgetActof:o(fortlispurpose.
Scope and Methodology
Te)ointLegislativeAuditCommittee(auditcommittee)
directed tleCaliforniaStateAuditortoconductanauditof
BOEscoststolouseitsemployeesandtorepairandmaintainits
leadquartersoceandsatellitelocationsintlegeneralSacramento
area.Teauditanalysistleauditcommitteeapprovedcontained
veseparateobjectives.Welisttleobjectivesandtlemetlodswe
usedtoaddresstleminTable.
Table 1
Audit Objectives and the Methods Used to Address Them
AUDIT OBJECTIVE METHOD
1 Review and evaluate the laws, rules,
and regulations signicant to the
audit objectives.
Reviewed the applicable laws, rules, and regulations for each objective.
2 Determine and assess, to the extent
possible, any actions taken by the
California Government Operations
Agency (State Government
Operations), the California Department
of General Services (General Services),
and the State Board of Equalization
(BOE) to address the following:
Collected and reconciled total maintenance charges from General Services with the amount paid
for maintenance BOE recorded to determine the amount expended thus far on maintenance of
thebuilding.
Reviewed and assessed General Services cost estimates for required, normal maintenance repairs
and necessary major infrastructure repairs to protect public health and safety.
Reviewed and assessed the temporary relocation costs BOE incurred during the previous
remediation. Discussed those costs with General Services sta to determine a reasonable cost
estimate to temporarily relocate BOE employees for the planned remediation.
Interviewed sta at BOE and General Services to determine if any time frames have been
developed for the necessary repairs.
Conrmed with State Government Operations that it has not been involved in any actions related
to this objective.
a. The total investment the State
would have to make to repair failing
components in the building at
450NStreet (building) to maintain
employee and public health and
safety levels, and the time frame for
making those investments.
b. The potential loss of worker
productivity that would result from
temporarily relocating employees
in the building during the course
ofrepairs.
Obtained and reviewed the volume of transactions BOE processed during the past 10 years.
Reviewed BOEs methodology that estimates the amount of lost productivity due to relocating its
employees to and from temporary work locations.
Interviewed BOE sta to determine the length of time necessary to move employees during
remediation eorts.
Conrmed with State Government Operations and General Services that their position is that
worker productivity loss is something BOE must consider and mitigate.
11 California State Auditor Report 2014-108
September 2014
AUDIT OBJECTIVE METHOD
c. The costs and benets of
maintaining the current spatial
conguration of the building
and the BOE satellite facilities,
compared to the costs and benets
of housing all BOE employees in
oneconsolidatedfacility.
Reviewed supporting documents BOE used to develop the business case presented in General
Services 2013 Relocation and Consolidation Preliminary Study: Board of Equalization and other
studies conducted by BOEand General Services.
Interviewed relevant sta at BOE and General Services regarding the costs and benets of
consolidating BOE headquarters locations.
Prepared a cost benet analysis of two dierent repair and move scenarios, using data and
estimates BOE provided.
Toured the Franchise Tax Board (FTB) headquarters and reviewed documentation from FTBto
compare its campus-style structure and process as an alternative for BOE headquarters operations.
d. The extent to which proposals for
housing BOE employees involving
public-private partnerships have
been considered, and whether
those proposed partnerships
would result in a cost savings to
the State.
Interviewed relevant sta at General Services and BOE to determine the extent to which they
have considered public-private partnerships for housing BOE employees, either temporarily for
remediation or on a long-term basis with a consolidated facility.
Interviewed State Government Operations sta regarding whether they had assessed proposals for
housing BOE employees involving public-private partnerships and determined that they are not
involved in assessing such proposals.
Reviewed and assessed whether General Services has used public-private partnerships in the past
for other real estate or relocation projects and whether they resulted in cost savings to theState.
Reviewed the denition of public-private partnerships as provided in the Legislative Analysts
Oce (LAO) report released in November 2012.
3 To the extent possible, determine
whether State Government
Operations, General Services, or BOE
has assessed the eect the repair
process may have on the collection of
state tax revenues.
Reviewed and compared BOE revenue forecasts with actual revenue generated over the past
10years to see if BOE productivity dropped during the time of the mold remediation between
2009 and 2012.
Interviewed BOE division chiefs to determine the impact on various units and validated with data
to the extent possible.
Reviewed BOEs methodology that estimates the amount of revenues lost because employees are
moved to and from temporary work locations.
4 Determine whether BOE has
projected its stang level over the
next 15 years. If not, use available
data to estimate that projected
growth in stang levels.
Interviewed BOEs chief construction supervisor to determine and assess the methodology BOE
used in developing its future 10-year space needs projection.
Obtained and examined historical total BOE stang levels using the Wages and Salary
supplements of the governors budgets for scal years 199293 through 201415 to determine
overall BOE lled positions for each year.
Identied and obtained the data BOE used to prepare its current and historical stang projections,
including all stang-related budget change proposals. To the extent possible, identied
headquarters employees as a percentage of the total BOE stang.
Using stang data BOE provided, projected BOE headquarters stang over the next 15years.
Conrmed our methodology with BOE to get its input to ensure that we considered all
relevantfactors.
5 Review and assess any other issues
that may be signicant to the audit.
Interviewed legal counsel at BOE and the State Public Works Board and reviewed supporting
documentation to determine any issues and options available to the State related to the
outstanding bonds.
Interviewed sta at the California State Treasurers Oce to develop an understanding of the
outstanding bond situation and options available to the State.
Sources: California State Auditors analysis of Joint Legislative Audit Committee audit request number 2014-108, planning documents, and analysis of
information and documentation identied in the table column titled Method.
12 California State Auditor Report 2014-108
September 2014
Blankpageinsertedforreproductionpurposesonly.
13 California State Auditor Report 2014-108
September 2014
Audit Results
The State Board of Equalization Cannot Support Elements of Its
Analysis ofthe Costs and Benets of a New Consolidated Facility
TeStateBoardofEqualization(BOE)lasperformedor
commissionedseveralanalysesoftlecostsandbenetsof
relocatingandconsolidatingitsleadquarters,butitlasnotyet
preparedacolesive,properlysupportedanalysisdemonstrating
tlattlebenetsofanewfacilityoutweigltlecosts.Mostrecently,
BOEpreparedabusinesscaseexaminingtlebenetsandcosts
ofconsolidatingitsleadquartersandannexesintleSacramento
region,wliclwasincludedintleCaliforniaDepartmentofCeneral
Services(CeneralServices):oRelocation and Consolidation
Preliminary Study: Board of Equalization(:ostudy).In:oo
BOEcommissionedananalysisoftlenetscalimpacttotle
Stateofremaininginorvacatingitsmainleadquartersbuilding
locatedat(,oNStreetindowntownSacramento(building).BOE
lasalsoperformedaninternalanalysisoftlecostsandbenets
ofcontinuingitscurrentspatialcongurationversusrelocating
andconsolidatingitsleadquarters.However,componentsoftlese
analysesincludingprojectedecienciesgainedbyanewfacility
andtlereducedcostsofnotlavingemployeesintlebuilding
wlilerepairsaremadearenotsupportedeitlerwitldataor
well-developedestimates.
BOE Has No Basis for Its Claim That a New Facility Will Increase
Productivity by 5 Percent
Intle:ostudyBOEstatedtlatmovingtoaconsolidated
low-risefacilitywouldlelpitstreamlineitsbusinessoperations
by allowingittoadoptalorizontalworkowsimilartotlatusedby
tleFrancliseTaxBoard(FTB).FTBalsocollectstaxespersonal
incomeandcorporationtaxesandaccordingtoitspublicaairs
oce,itsleadquartersisapproximately.8,millionsquarefeet
rougllytripletlesquarefootageofallveBOEleadquarters
locations.BOEstatedtlatbystreamliningitsoperationsintoa
lorizontalmovementoftaxdocumentsandreceiptsratlertlan
tleverticalmovementusedinitscurrentbuilding,itanticipates
a,percentimprovementinproductivity,potentiallyequating
toanadditionals8,millioninannualrevenuetlatenforcement
personnelsuclasauditorsandcollectorswouldgenerate.If
actuallyrealized,tlisadditionalrevenuecollectedwoulddwarf
anymarginaldierencesbetweentlecostsofitscurrentwork
spaceandtlecostsofanewfacility.WlenweaskedBOEsclief
offacilitiesanditscliefconstructionsupervisorlowBOEarrived
attleanticipated,percentimprovementinproductivityand
additionalrevenue,tleyassertedtlatitwasbasedonlowmucl
California State Auditor Report 2014-108
September 2014
14
FTBsproductivityladimprovedwlenitmovedtoitscurrent
locationin ,8,.However,tleywereunabletoprovideuswitl
documentationorassertionsfromFTBtlatsuclanincreaseactually
occurredandtlatitresultedfromitsmove.
Additionally,BOElasnotanalyzeditsownprocessingoperations
todeterminewletleranewfacilitywouldincreaseproductivity,
norlasitanalyzedtletimeframewitlinwliclitcouldexpect
toseesuclgains.Instead,accordingtoitscliefconstruction
supervisor,BOEreliedonitsobservationoflowFTBsoperations
laveimprovedbyattendingatourofFTBsleadquartersfacilities.
However,weattendedtlesametourduringourauditandobserved
tlatFTBbenetsfromitsuseofteclnologytleelectronic
scanningandslaringofdocumentsinparticular.Teuseoftlis
teclnologymakestleplysicalworkowwletlerlorizontalor
verticallesscritical.BOEalsostatedinitsbusinesscasetlatits
multipleleadquarterslocationsrequirestatotravelfromlocation
tolocationtoattendmeetingsordeliverandretrievedocuments,
andtlatnecessitatesamailcourierservice.However,accordingto
itsmanagement,BOElasnotperformedacomprelensivestudy
toexaminetleinecienciesofitscurrentspatialorganizationand
lowtleycouldbeeliminatedbymovingtoalorizontalprocessing
structure.BOEscliefconstructionsupervisorstatedtlatlelad
onlyalimitedamountoftimetoputtogetlertlebusinesscasetlat
wasincludedintle:ostudy.Witloutastrongrationaleunderlying
itsassumptionsfortlesepotentialimprovements,BOEsbusiness
caselackscompellingevidencetodemonstratetleneedtorelocate
andconsolidateitsleadquartersoperation.
In:ooBOEcommissionedananalysisoftlenetscalimpactto
tleStateifBOEremainedorvacatedtlebuilding.Tatanalysis
concludedtlatanewfacilityforBOEleadquarterswouldbetle
bestoptionifBOEcoulddemonstratetlataconsolidationwould
increaseitseciency.Teautlorsoftle:oostudyrecommended
tlatBOEinitiateananalysisoftleextenttowliclitcouldenlance
eciencyandbetterserveitsmissionbyconsolidatingoperations
intoonelocation.However,accordingtoitsformerdeputydirector
ofadministration,BOEdidnotimplementtlisrecommendation
becauseCeneralServicesoversigltagencyattletime,tleStateand
Consumer ServicesAgency,refusedtosupporttlereportandits
ndings.
3
Moreover,tlegovernorattletimevetoedabilltlatsouglt
toconsolidateBOEsleadquarterslocations,inpartbecauseoftle
scalconditionoftleState.Witlouttlesupportoftleadministration,
BOEsmanagementfelttlatorderingfurtlerstudiesorexamining
tleecienciestlatitcouldaclievebymovingtoanewbuildingwas
notaproductiveuseoffunds.Teformerdeputydirectoralsotold
3
The former deputy director of administration at BOE retired during our audit and was replaced
bythe current deputy director of administration in May .
BOE has not analyzed its own
processing operations to determine
whether a new facility would
increase productivity, nor has it
analyzed the time frame within
which it could expect to see
suchgains.
15 California State Auditor Report 2014-108
September 2014
ustlatBOEisplanningtolireavendortostudytleextenttowlicl
BOEcouldimproveitseciencybyconsolidatingoperationsinto
one locationanddeterminingtleoptimaldesignclaracteristicsofits
taxreturnprocessingareas.However,BOElasnotyetcompletedtle
scopeofworknorclosenavendortoperformtlisanalysis.
The Total Costs and Time Frame to Complete Repairs Are Still Uncertain
AswediscussedintleIntroduction,CeneralServicesandBOE
laveidentiedseveralfailingcomponentsintleBOEbuilding,
includingtlebuildingsspandrelglasspanels,wastewaterpipes,
andtleleating,ventilation,andairconditioningsystemaswellas
outstandingitemsfromapreviousbuildingassessment.Understate
law,CeneralServicesresponsibilitiesincludeplanning,acquiring,
constructing,andmaintainingstatebuildingsandproperty.Ocials
atCeneralServicesindicatedtlattleygatleredinformationfroma
priorbuildingremediationandlelddiscussionswitlrepresentatives
fromtradeandmanufacturersassociationswloindicatedtoCeneral
Servicestlatasof)une:o(constructionassociatedwitltlesefailing
componentsmigltcostrougllys(o million.However,tleseocials
addedtlattlisamountwasonlypreliminaryandcouldclangeonce
tleprojectscopeisnalized.
Asof)une:o(CeneralServicesladnotnalizedatimeframefor
completionofalloutstandingrepairs.Altlougl,inconsultationwitl
tleCaliforniaDepartmentofFinance(Finance)andBOE,Ceneral
Serviceslasdeterminedtleinitialscopeofacombinedrepair
projecttoaddressallidentieditems,tlescopecouldbemodied
afterCeneralServicesliresconsultantstoexaminetlebuildingand
preparedesigndrawingsforcompletingtlerepairs.Duringtlat
samemontl,FinanceautlorizedCeneralServicestoexpendfunds
toselectconsultantsandfurtlerdeveloptlescopeofworkoftle
repairproject.Basedontleinitialscopeofwork,acapitaloutlay
programmanager(capitaloutlaymanager)intleprojectmanagement
anddevelopmentbranclatCeneralServicesprovideduswitla
rougltimeframeofalmostfour yearsfromtleinitialselectionof
consultantstlrougltlecompletionoftleconstructionplaseoftle
repairs.However,accordingtotlecapitaloutlaymanager,tletime
frameandscopeforcompletingrepairsalsodependsonlowBOE
movesitsstaaroundwlilerepairsarebeingcompletedandwletler
anyunforeseencircumstancesariseduringtleconstructionplaseof
tle repair project.UntilCeneralServiceslirestleconsultantsandtle
repairprojectmovesforward,tletotalcosts,timeframe,andscope
ofrepairswillremainuncertain.Additionally,givencurrentandpast
litigation,tleStatefacespotentiallysignicantlegalandworkers
compensationcostsassociatedwitltlelealtlconcernsallegedly
causedbytleunresolvedproblemsintlebuilding,asdescribedin
tle Introduction.
Given current and past litigation,
the State faces potentially
signicant legal and workers
compensation costs associated
with the health concerns allegedly
caused by the unresolved problems
in the building.
California State Auditor Report 2014-108
September 2014
16
Inadditiontouncertaintyabouttotalcosts,repairingtlebuilding
wlileitisemptyaddsalayeroflegalcomplexityanduncertainty.
Specically,tlestateconstitutionprolibitstleStatefromcreating
debtinexcessofsoo,ooounlessautlorizedbylawandapproved
bytlevoterscommonlyknownastlestate debt limit.TeState
nancedtlepurclaseoftlebuildingusingalease-revenuebond
tlatprovidesforbondinvestorstobepaidfromtleproceedsof
rentingtlebuilding.Tistypeofnancingisconsideredanexception
to tlestatedebtlimit.However,tlisexceptioniscontingentupon
tlebuildingsuseandavailabilityasanocebuilding.Conversations
betweenourlegalcounselandlegalcounselfromtleStatePublic
WorksBoard(PublicWorksBoard)raisedconcernsoverwletler
tlelackofuseandoccupancyduringremediationoftlebuilding
wouldmeantlattlebondswerenolongerexemptedfromtle
statedebtlimit.However,legalcounselfortlePublicWorksBoard
acknowledgedtlattlisscenarioanditsimplicationsareonly
speculativeattlispoint.Tislegalissuewouldneedtoberesolvedif
tlebuildingweretobeemptiedduringremediation.
BOE Cannot Support Critical Components of Its Cost-Benet Analysis
BOEperformedaninternalanalysisoftlecostsandbenetsof
potentialscenariosinvolvedinmakingnecessaryrepairstotle
building.WefocusedontwokeyscenariostlatBOEanalyzed.
Terstscenarioinvolvesperformingtlerepairsinplasesby
rstmovingfouroorsofemployeesoutsideoftlebuildingfor
tledurationoftlerepairproject,tlentemporarilymovingtle
remainingemployeesintlebuilding,fouroorsatatime,to
availablespacewitlintlebuildingwlilerepairsareconducted,and
nallymovingtlembackafterrepairsarecompleted(scenario ).
TesecondscenarioinvolvesmovingallBOEstaoutoftle
buildingaswellasoutoftletwoannexesandconsolidatingtle
staintoanewfacility(scenario:).WefoundtlatBOElad
omittedseveraltypesofcostsfromtlisanalysis.Forexample,
BOEsanalysisforscenario:didnotincludealloftlecoststo
movetlestacurrentlylousedinitsleadquartersannexesinto
aconsolidatedfacility.Itsestimatedleasingcostsalsodidnottake
intoaccounttlelargerspacetlatwouldbeneededinorderto
mergeitsannexstawitlitscurrentleadquartersbuildingsta.
Table:summarizestledataBOEprovided,includestlisadditional
information,andcorrectsotlererrors.However,inmakingtlese
corrections,wecontinuedtouseBOEsunderlyingassumptions
todeterminecosts.InTable:welaveusedredtoindicate
componentsoftleanalysistlatarebasedonassumptionsforwlicl
BOElackedadequaterationaleorunderlyingsupport.
BOEs analysis did not include all of
the costs to move the sta currently
housed in its headquarters annexes
into a consolidated facility and did
not take into account the larger
space that would be needed.
17 California State Auditor Report 2014-108
September 2014
Table 2
Comparison of the Costs of Maintaining the State Board of Equalizations Current Spatial Organization Versus
Relocating and Consolidating Its Headquarters Locations
CATEGORY OF COSTS
SCENARIO 1 STATE BOARD OF EQUALIZATION (BOE)
MAINTAINS ITS CURRENT SPATIAL CONFIGURATION SCENARIO 2 BOE CONSOLIDATES ITS HEADQUARTERS LOCATIONS
AMOUNT COMMENT AMOUNT COMMENT
Lease costs for
headquarters
$51,700,374
BOE lease cost for the building at
450NStreet during a BOE-estimated
3-year remediation period.
$43,083,645
BOE lease cost for the building at
450NStreet during the period of a
BOE-estimated 2.5-year phased move to
anewfacility.
Other lease costs
calculated by BOE
19,600,000
BOE-estimated cost to lease the equivalent
of four oors of space for 400employees to
provide temporary work space outside of
the building during a BOE-estimated 3-year
remediation period. BOEs estimate assumes
200 square feet per employee and includes
a monthly leasing rate of $5 persquarefoot,
plus a one-time cost of $65per square
footfor tenant improvements to make the
leased space appropriate forBOEs needs.
We used red to indicate that BOE cannot
support the $5per square foot.
40,860,000
BOE-estimated lease cost for a new
consolidated facility, which is based on
BOE assumptions of a 2.5-year phased
move, 500,000 square feet of space at
completion, roughly $3 per square foot,
and a total cost of nearly $31.7 million
over 2 years. We included roughly
$9.1million in lease payments for an
additional 6months because BOEs
analysis included these costs for only
2years instead of 2.5 years.
Lease costs not included
in BOEs original move
cost scenarios
12,326,004
We included the lease costs for
twoannexes that BOE has considered
for consolidation during the 3-year
remediation period, based on current
lease rates, as BOE will continue to incur
these costs if it maintains its current
conguration. BOE did not include this
amount in its analysis.
7,794,493
BOE will need 85,748 square feet
of additional space, beyond the
500,000square feet, for its new facility
to maintain its current level of space. We
added the cost of this extra space over
a 2.5-year time period at roughly $3 per
square foot.
Building repairs
40,000,000
Provided by the California Department of
GeneralServices. 20,000,000
According to BOE, the State could save
50percent if the building repairs are
madein an empty building.
Moving expenses
2,200,000
BOE-estimated cost to move
2,200employees to and from
temporarywork locations at a cost of
$500per employee per move while
building repairs are conducted.
1,221,500
BOE estimated the cost to move
2,200employees from current work
location to a new consolidated facility at a
cost of $500 per employee. We calculated
the additional cost for 243 employees, as
BOE plans to consolidate its headquarters
building and two annexes2,443 total
employees as of June 30, 2014.
New furniture costs
2,000,000
BOE-estimated cost of $5,000 per
employee to purchase new furniture
for 400 employees at a temporary
worklocation.
12,215,000
BOE-estimated cost to purchase new
furniture for 2,200 employees moved to
a new consolidated facility at a cost of
$5,000 per employee. We calculated the
additional costs for 243 employees, as
BOE plans to consolidate its headquarters
building and two annexes2,443 total
employees as of June 30, 2014.
Totals $127,826,378 $125,174,638
Benet of a relocation and consolidation $2,651,740
Source: California State Auditors analysis of the BOE internal analysis of the costs and benets of continuing its current spatial conguration versus
relocating and consolidating its headquarters.
Note: BOE did not include in its analysis the costs or benets related to lost productivity and state revenues or stang growth. We discuss these
subjects in subsequent sections.
= Indicates BOE lacks supporting documentation.
= Indicates BOE had sucient supporting documentation.
California State Auditor Report 2014-108
September 2014
18
UndertleassumptionsinTable:,tleStatecouldbenetby
rougllys:.;millionifitemptiedtlebuildingbeforebeginningtle
repairsandifitpermanentlyrelocatedBOEtoanewconsolidated
facility(scenario:).However,mostoftlisbenetisderivedfrom
BOEsestimatetlattlebuildingrepairswillcosts:omillion
lessiftlebuildingisemptyoftenantsratlertlanifonlycertain
oorscanbeworkedonatagiventime.CeneralServicesagrees
witltleconcepttlatrepairstoanemptybuildingcouldbeless
expensive,butitwouldnotmakeablanketassumptiontlatsucl
acostreductionwilloccur.IfBOEsassumptiontlatrepaircosts
canbelalvedisincorrect,tlenetscalbenetofrepairingtle
buildingwlenemptywouldbeerased.Forexample,iftlerepairsto
tle emptyBOEbuildingcostsomillionratlertlantleestimated
s:o million,tleStatewouldincuranetcostofovers;.millionif
BOEconsolidateditsleadquarters.
Additionally,BOEcouldnotsupportseveraloftleguresit
usedtoestimateotlerleasecosts,andtlereforewequestion
tlese costs.Specically,BOEestimateds,.6millioninotler
leasecosts fortleequivalentoffouroorsofspacetotemporarily
louse(oo ofitsemployeesduringrepairstotlebuildingaspart
ofscenario.Tocalculatetlisamount,BOEusedamontllylease
rateofs, persquarefootwliclitcouldnotsupportplusa
one-timecostofs6,persquarefootfortenantimprovements
tomaketleleasedspaceappropriateforBOEsneeds.By
comparison,underscenario :,BOEestimatedtlecosttolease
anewconsolidatedfacilityusingamontllyleaserateofrouglly
spersquarefoot,wliclitalsocouldnotsupport.Tes,per
squarefootfortemporaryspaceBOEusedinscenariomay
beoverstated.AccordingtoinformationfromCeneralServices
andtleDowntownSacramentoPartnerslip,amontllylease
rateofs.;, persquarefootmaybemoreinlinewitlcurrent
Sacramentorealestatemarketconditions.IfBOEsleasecostsfor
temporaryspaceares.;,persquarefootratlertlans,,tlecosts
ofmaintainingitscurrentspatialorganizationwouldbereduced
byrougllys.6million.Tisreductionitselfwouldeliminatetle
overallnancialbenetofscenario:,asslownin Table :.
BOE Could Improve Its Methodology for Estimating How Temporarily
Relocating Employees Negatively Aects Worker Productivity and
State Revenues
BOEalsodidnotincludeinitsinternalanalysistlecostsassociated
witllostproductivityandloststaterevenueseacltimeemployees
aremoved.Employeesmustmovetwiceunderscenariointoa
temporarylocationandbackagainafterremediationcompared
toonceinscenario:,inwlicltleywouldmakeasinglemoveto
anewconsolidatedfacility.Duringapriorremediationproject,
BOE also did not include in
its internal analysis the costs
associated with lost productivity
and lost state revenues each time
employees are moved.
19 California State Auditor Report 2014-108
September 2014
BOEdevelopedametlodologyforestimatinglostproductivityand
revenuestoinformitsboardmembersandtleLegislatureoftle
impacttleremediationladontaxcollections.BOErecentlyused
tlismetlodologytoestimatetlecostoflostproductivityrelated
tomovingitsleadquartersemployees.Temetlodologyconsists
ofmultiplyingtlesalariespaidtoBOEemployeeswlowouldbe
involvedintlemovebytleestimatednumberofmove-related
loursperemployee.AsslowninTable,BOEassumedtlateacl
employeewouldlose8oloursofproductivityunderscenarioby
lavingtomoveto,workat,andmovebackfromatemporarywork
location.However,wequestionBOEsassumptionof8oloursof
lostproductivityperemployee.AltlouglBOEsstaassertedtlat
tleybasedtle8o-lourestimateonpriormoveexperiences,tley
couldnotprovidedocumentationtosupporttleirclaims.Because
BOEusedanestimatetlatisnotsupportedbydocumentation,we
laveslowntlisgureinredinTable.
Table 3
State Board of Equalizations Estimated Productivity Loss From Temporarily
Relocating Its Headquarters Employees
2,019 Total headquarters full-time equivalent employees
x 80 Estimated hours related to the move per employee
161,520
Total hours to move employees to and from
temporary work locations
x $47.78*
Average hourly salary and benets of State Board of
Equalization (BOE) employees
$7,717,067 Total productivity loss
Source: California State Auditors analysis of BOE Employee Move Estimated Lost Productivity
Calculation, April2014.
= Indicates BOE lacks supporting documentation.
= Indicates BOE had sucient supporting documentation.
* This amount has been rounded for presentation purposes.
BOEsmetlodologyalsoestimatestlerevenueslostduring
relocationofemployees,butBOEstaacknowledgetlattley
cannotsupportlowkeyguresweredevelopedwitlintle
metlodology.BOEestimatedtlatitsemployeesspecically,
tloseresponsibleforauditingandcollectingsalesandusetaxes,
andpropertyandspecialtaxeswouldspend8oloursnotbeing
productivebecauseofmovingandworkinginatemporaryspace.
BOEtlentranslatedtle8oloursoflostproductivityintotle
equivalentnumberofpersonnelyearsandappliedtlatnumber
toaguretlatrepresentstlestaterevenuesgeneratedper
personnelyeartoarriveattletotaloflostrevenues.Again,BOEs
staassertedtlattleybasedtle8o-lourestimateonpriormove
California State Auditor Report 2014-108
September 2014
20
experiences,buttleycouldnotprovidedocumentstosupport
tlis claim.Additionally,wequestionBOEsestimateoftlerevenues
generatedperpersonnelyear,asBOEcouldnotsubstantiatetle
developmentoftleseamountseitler.Wespokewitlseveralsta
membersatBOEwlostatedtlatwliletleguresarebasedontle
originalcalculationtlatBOEdevelopedin:oo,tleydonotlave
supportforlowtloseamountsweredetermined.BecauseBOE
lackedtleanalysistodemonstratelowitcalculatedtlerevenues
generatedperpersonnelyear,welaveslowntloseguresinredin
Table(,alongwitlBOEs8o-lourmovetimeestimate.
Table 4
State Board of Equalization Estimated Lost State Revenues From Temporarily
Relocating Its Headquarters Employees
SALES AND USE
TAX DEPARTMENT
PROPERTY AND
SPECIAL TAX
DEPARTMENT
614 311 Number of employees in unit
x 80 x 80 Estimated hours related to the move per employee
49,120 24,880 Total hours to move employees
1,800 1,800 Number of hours per personnel year
27.29* 13.82* Personnel years lost due to move
x $705,000 x $666,000 Revenue generated per personnel year for each unit
$19,238,667 $9,205,600 Lost revenue from each unit
$28,444,267 Total lost revenue
Source: California State Auditors analysis of the State Board of Equalizations (BOE) Employee Move
Estimated Lost Productivity Calculation, April 2014.
= Indicates BOE lacks supporting documentation.
= Indicates BOE had sucient supporting documentation.
* This amount has been rounded for presentation purposes.
DespiteourconcernswitlBOEslackofsupportforitsestimates,
weagreetlattlecostofmovingitsemployeeswouldbelalved
ifBOEmovedonlyoncetoaconsolidatedfacility(scenario:)
ratlertlantwice(scenario).Teresultinglowerestimateof
lostproductivityandstaterevenuescouldaddtotlebenetof
relocatingasslowninTable:onpage;.
Inadditiontotleunsupportedguresusedinitscalculation,
BOEacknowledgedtlatitsmetlodologydoesnotaccountfor
otlerlostproductivityorrevenuesasaresultoftemporarily
relocatingemployees.Specically,managersfromtlesalesand
usetax,andpropertyandspecialtaxdepartmentsbotlstatedtlat
tlemetlodologydoesnotincludetleproductivitylossrelated
toemployeeswloindirectlycontributetorevenuecollection
byprocessingpaidtaxesorbyprovidingtaxpolicysupport.
21 California State Auditor Report 2014-108
September 2014
Temanagersstatedtlattlislossofproductivityisdicultto
quantify,andfortlisreason,BOElasnotperformedanyanalysis
oftlisinformation.Again,BOEwouldbeabletoavoidlalfof
tlispotentiallostproductivityandrevenueifitmovedoncetoa
consolidatedfacilityratlertlanmovingtoandfromtemporary
workspace.
Regardlessofwletleritconsolidatesandrelocatesorcontinues
witlitscurrentspatialconguration,webelieveBOEwould
benetfrombettersupportingitsmetlodologyforcalculatinglost
productivityandrevenue.Webelievetlatasarevenue-generating
entity,BOEslouldbeabletosupportitsestimatedproductivityand
revenuelossifitsemployeesareunabletoworkforanyreason.To
makeitslossestimatesasaccurateaspossible,BOEslouldanalyze
itsrevenue-generatingcapabilitiestounderstandlowmoving its
employeeswouldaecttaxcollections,anditslouldimprove
its abilitytosupportanyfuturecalculationsoflostproductivityor
tax revenues.
By Overestimating Stang Growth, BOE Overstated the Problem of
Needing Additional Oce Space to Accommodate New Sta
FuturestangprojectionsareanotlercomponentBOEmust
considerasitmakesacasetorelocateandconsolidateits
leadquarters.Accordingtotle:ostudy,BOEsleadquarters
locationsarealreadynearcapacity,andasaresult,implementation
andcollectionofanynewtaxandfeeprogramswouldlikelybe
delayedbecauseitwouldlavetondadditionalspacetolouse
newsta.AltlouglweagreetlatBOEwilllikelylavetondsucl
additionalspacetolousenewsta,tle:ostudyoverstatedtle
scopeoftlisproblembyusingstagrowtlestimatesbasedon
tlelistoricallyliglgrowtlexperiencedintlelastveyears.We
believeamorereasonableestimatewouldresultfromconsidering
moreyearsofstangdata.However,evenourmoreconservative
estimateofstagrowtlindicatestlatunlessitrelocates,BOEwill
needadditionalspacebeyonditsmainleadquartersbuilding.
Accordingtoitscurrentdeputydirectorofadministration,BOEs
nancialmanagementdivisionassistsBOEsprogramareasin
analyzingtleneedforadditionalstaaspartoftlenormalbudget
process,lowever,tledivisionlasnotconducteda,-yearstang
projectiontoidentifyBOEspotentialneedsfortlefuture.
4
Sle
addedtlattlerearetoomanyuncertaintiestlatwouldaecta
long-termprojectionofBOEsleadquartersstangneeds,sucl
4
The former deputy director of administration at BOE retired during our audit and was replaced
bythe current deputy director of administration in May .
Even our more conservative
estimate of sta growth indicated
that unless it relocates, BOE will
need additional space beyond its
main headquarters building.
California State Auditor Report 2014-108
September 2014
22
astleunknownimpactoffuturelegislativemandates.However,
BOElasdonesomeplanningtoestimateitsfuturespaceneeds.
Accordingtoadraftworksleettlattlecliefconstruction
supervisorprepared,BOEbelievestlatovertlenextoyearsit
willneedtoaddalmost8o,ooosquarefeetofleadquartersspace
tolouseitsgrowingsta.Tecliefconstructionsupervisorbased
tlisestimateonanannualstanggrowtlrateofpercent,wlicl
issimilartoprojectionsCeneralServicesincludedintle:ostudy.
Weaskedtlecliefconstructionsupervisorifusinga percent
ratewasreasonable,andlenotedtlattlisisclosetowlatBOEs
averagegrowtlwasovertlepastveyearsandslouldbean
accuraterepresentationoffutureneed.
However,webelievetlataprojectionofpercentstanggrowtl
mayoverestimateBOEsfuturegrowtl.WereviewedBOEstotal
lledpositionscontainedintlesalariesandwagessupplementsof
tlepast:ogovernorsbudgetsandfoundtlattlelistoricalaverage
growtlrateforBOEissubstantiallylesstlanpercent.Altlougl
tleaverageannualgrowtlrateforBOEslledpositionsovertle
pastvescalyearswasrougllypercent,overtlepast:oyearsit
lasbeenunderpercent.Figure(projectsBOEsstanggrowtl
basedonitslistoricalgrowtlovertlepast:oscalyears.For
comparisonpurposes,wealsopresentBOEsprojectedgrowtl
usingitspercentannualgrowtlrate.Asslownintlegure,
BOEsprojectedgrowtlrateissignicantlygreatertlanourmore
conservativeprojections,wliclincludedafactortoaccountfor
someoftlevarianceintlelistoricaldata.
5

Accordingtotlecliefconstructionsupervisor,usinglong-term
datatoestimatefuturestangcouldleadtomisinterpretingBOEs
stanggrowtlasBOEsresponsibilitieslaveclangedovertime.
However,webelieveusingslort-termdatatoestimatefuture
stangneedslasanequalifnotgreaterclanceofmiscalculating
futurestalevels.Forexample,BOEslledpositionsdeclinedby
moretlan(percentfromscalyears:oo:otlrougl:ooo(,
becauseoftleconditionoftlestatebudgetattletime.IfBOElad
performeditsanalysisusingtleveyearssurroundingtlisdecline,
itwouldlaveprojectedamuclslowergrowtltlanitdidasaresult
ofusingtlemostrecentveyears.
5
We calculated the standard deviation and included it in our upper and lower projections to
account for some of the variation in the historical stang data. Standard deviation is a statistical
term for the amount of variation or dispersion from the average. We calculated that the standard
deviation was lled positions over the past scal years.
23 California State Auditor Report 2014-108
September 2014
Figure 4
State Board of Equalization Historical Filled Positions and Projections Based on Stang Trends
BOE projection
California State Auditor
(state auditor) projections
Upper projection
Historical growth and
medium stang projection
Lower projection
T
o
t
a
l

S
t
a
t
e

B
o
a
r
d

o
f

E
q
u
a
l
i
z
a
t
i
o
n

(
B
O
E
)

l
l
e
d

p
o
s
i
t
i
o
n
s
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
1
9
9
4

9
5
1
9
9
9

2
0
0
0
2
0
0
4

0
5
2
0
0
9

1
0
2
0
1
4

1
5
2
0
1
9

2
0
2
0
2
4

2
5
2
0
2
8

2
9
Fiscal Years
Sources: BOE draft analysis of space needs and the state auditors analysis of BOE stang based on BOEs total lled positions shown in past
governorsbudgets.
Note: To determine the upper and lower projections, we calculated the standard deviation and projected 15 years of potential stang growth
starting from BOEs current number of lled positions and ending at the medium stang projection plus and minus one standard deviation.
AltlouglwebelievetlatBOEsestimatesaretooligl,using
eitlerBOEsestimateorours,futurestangneedswillresultin
BOEneedingadditionalworkspaceifitsleadquartersremain
unconsolidated.Evenwitlfourexistingsatelliteoces,BOE
leadquartersisalreadyatmaximumcapacity.Table,ontle
followingpageslowstlecalculationoftlepotentialfuture
additionalleasespaceandassociatedcostusingBOEspercent
growtlrateandtlegrowtlratewecalculatedusingtlemore
conservativeestimatebasedontlemetlodjustdescribed.Using
ourmetlodology,BOEwillrequireadditionalleadquartersspace
inscalyear :o:o:,amountingtojustover:,ooosquarefeet.
Ten,intlefollowingscalyear,BOEsadditionalleadquarters
spacewillneedtoincreasebyrouglly,ooosquarefeet,fora
totalof:(,oooadditionalsquarefeet,ontopoftleapproximately
6::,ooosquarefeetitiscurrentlyleasing.Tefuturelease
paymentsassociatedwitltlisadditionalspacepresentapotentially
signicantincreaseintlecostforBOEtocontinuewitlitscurrent
24 California State Auditor Report 2014-108
September 2014
conguration.Even so,ouranalysisindicatestlattlespaceneeded
wouldnotbenearlyasextensiveasBOEsprojectionsindicate.
AsTable ,slows,usingitsgrowtlrateofpercent,BOEbelieves
itwillrequireadditionalspaceofo,,o8(squarefeetatacost
ofrougllys.8 millionbyscalyear:o:o:,lowever,usinga
moreconservativepercentrateofgrowtl,weprojecttlatBOE
willneedonly:,6(squarefeetofadditionalspacebytlatsame
yearatacostofs;;6,;,,.BOElasnotyetincludedinitsinternal
cost-benetanalysistleeectofstanggrowtloncostsunder
tlevariousoptions.WebelieveBOEcouldmakeitsanalysismore
completebydoingso.Ifitincludesstanggrowtlinitsanalysis,
webelieveBOEsloulduseourlowerprojections,wliclarebased
onmoreyearsofdata.
Table 5
Additional Square Footage and Lease Costs Based on Projected Stang During the Next 15 Years
USING STATE BOARD OF EQUALIZATION (BOE) ESTIMATED STAFFING
USING THE CALIFORNIA STATE AUDITORS
ESTIMATED STAFFING
FISCAL YEAR
PROJECTED
HEADQUARTERS
STAFFING
CUMULATIVE ADDITIONAL
SQUARE FOOTAGE BASED
ON STAFFING GROWTH
CUMULATIVE
ADDITIONAL
LEASE COST
PROJECTED
HEADQUARTERS
STAFFING
CUMULATIVE ADDITIONAL
SQUARE FOOTAGE BASED
ON STAFFING GROWTH
CUMULATIVE
ADDITIONAL
LEASE COST
201314 2,502.00 2,502.00
201415 2,577.06 15,012 $545,836 2,517.26 3,052 $110,971
201516 2,652.12 30,024 1,091,673 2,532.52 6,104 221,941
201617 2,727.18 45,036 1,637,509 2,547.78 9,156 332,912
201718 2,802.24 60,048 2,183,345 2,563.04 12,208 443,883
201819 2,877.30 75,060 2,729,182 2,578.30 15,260 554,854
201920 2,952.36 90,072 3,275,018 2,593.56 18,312 665,824
202021 3,027.42 105,084 3,820,854 2,608.82 21,364 776,795
202122 3,102.48 120,096 4,366,691 2,624.08 24,416 887,766
202223 3,177.54 135,108 4,912,527 2,639.34 27,468 998,736
202324 3,252.60 150,120 5,458,363 2,654.60 30,520 1,109,707
202425 3,327.66 165,132 6,004,200 2,669.86 33,572 1,220,678
202526 3,402.72 180,144 6,550,036 2,685.12 36,624 1,331,649
202627 3,477.78 195,156 7,095,872 2,700.38 39,676 1,442,619
202728 3,552.84 210,168 7,641,708 2,715.64 42,728 1,553,590
202829 3,627.90 225,180 8,187,545 2,730.90 45,780 1,664,561
Sources: BOE projected stang growth and the California State Auditors analysis of historical stang growth based on past governors budgets.
Notes: We used BOEs assumption for square footage per employee200 square feetand its assumption for the long-term lease rate$3.03 per
square footto calculate the additional lease cost from stang growth. BOEs total headquarters space is approximately 622,000 square feet.
25 California State Auditor Report 2014-108
September 2014
Our Expanded Analysis Indicates the State Would Benet Financially
by Moving BOE to a Consolidated Facility
Earlierintlisreport,Table:onpage;presentedtwoscenarios
foraccomplislingbuildingrepairs,basedoninformationtaken
fromBOEsinternalanalysis,anditconcludedtlattleStateand
BOEwouldbenetfromrelocatingBOEleadquarterstoanew
consolidatedfacility(scenario:).However,BOEsanalysisincluded
severalassumptionstlatwequestion.Consequently,welave
expandedtleanalysisbyincludingadditionalcomponentsand
usingmoreconservativeassumptions.AsslowninTable 6ontle
followingpage,ourexpandedanalysisalsoconcludestlatBOE
movingtoaconsolidatedfacilitywlileremediationoccursontle
buildingcouldlaveanetscalbenettotleState.
Table6includesadjustmentstoBOEsestimatestlat,aswe
describeinearliersections,didnotlaveadequatesupportor
rationale,includingrepaircostsandtemporaryleasespace.For
instance,becauseBOEcouldnotsupportitsestimatedproductivity
gainof,percentfrommovingtoanewconsolidatedfacility,we
reducedtlisestimatetoone-tentlofwlatBOEprojectedas
tlepotentialproductivitygain.Additionally,wereducedBOEs
estimatedsavingsonrepaircostsandtleassociatedsavings
fromaslorterrepairtimeframeresultingfrommakingrepairs
totlebuildingwlileitisemptybecauseBOEdidnotprovidea
supportablerationaleforitsassumptions.Also,insteadofusing
BOEsassumed(oloursoflostproductivityandrevenueeacl
timeanemployeemovesanumberforwlicl,asdescribedearlier,
BOEdidnotlaveadequatesupportorrationaleweallowedfor
:oloursoflostproductivityandrevenuepermove.Aftermaking
tleadjustmentsdescribedinTable6,webelieveacasecanbemade
tlatmovingBOEtoanewconsolidatedfacilityduringremediation
oftleexistingbuildinglasnetscalbenets.
BOEcouldstrengtlenitscaseevenmorebyanalyzingitsown
operationstoidentifyadditionalgainsorreducedlossesfroma
consolidation.However,wenotetlatanynetscalbenetswould
quicklyerodeiftlebuildingforwlicltleleaseiscurrently
overs.(millionpermontlremainsemptyforanysignicant
lengtloftimeafteritlasbeenremediated.Forexample,under
tleassumptionsinTable6,if,afterbeingremediated,tlebuilding
isvacantfortlreemontlswitloutapayingtenant,tlenancial
benettotleStatefromaBOEconsolidationwoulddisappear
entirely.Consequently,wlilemovingtoanewfacilitywouldrelieve
BOEofamajorproblemitlasenduredformanyyearsandmaybe
nanciallybenecialoverall,tlisdecisionwouldessentiallytransfer
risktoCeneralServices,wliclmanagestleStatesproperties.
Asdiscussedinsubsequentsections,CeneralServiceslasnot
proactivelyanalyzedwlereBOEcouldmoveorwlattleState
woulddowitltlebuildingslouldBOEnolongerbetletenant.
While moving to a new facility
would relieve BOE of a major
problem it has endured for many
years and may be nancially
benecial overall, this decision
would essentially transfer risk to
General Services.
26 California State Auditor Report 2014-108
September 2014
Table 6
Expanded Analysis Presenting Changes to Net Benet in Table 2 Based on Alternative Assumptions
CHANGE
CALIFORNIA STATE
AUDITOR (STATE
AUDITOR) ADJUSTMENT
Total net benet from consolidation from Table 2, which we prepared using the State
Board of Equalizations (BOE) assumptions $2,651,740
DESCRIPTION OF ADJUSTMENT
State auditor adjustments to BOE assumptions in Table 2
Reduced BOEs estimated
savings on repair costs
($10,000,000)
In Table 2 BOE assumes that the cost to repair the building located at 450 N Street in downtown
Sacramento (building) will be $20million if the building is empty and $40 million if it is not
empty. Our estimate of $10 million in savings if the building isempty represents a more
conservativeassumption.
Reduced BOEs estimated
savings from a shorter
repair time frame.
($19,371,062)*
In Table 2 BOE assumes a 1-year move period and a 1.5-year repair period under scenario 2. If
repairs take 2 years, BOE would face additional lease costs for 6 months at both 450 N Street and
in anewfacility.
Reduced BOEs projected
short-term leasing costs
($3,600,000)
In Table 2 BOE assumes a short-term monthly lease rate of $5 per square foot to lease temporary
space for its employees under scenario 1. If we used the higher of the monthly lease rates
provided by the California Department of General Services (General Services) and the Downtown
Sacramento Partnership$3.75 per square footthe cost of scenario 1 would be less expensive
and would reduce the benet of a consolidation.
State auditor adjustments to additional benets not included in Table 2
Reduced BOEs
productivity gain from
5percent to 0.5 percent
$24,475,000


BOE assumes that it will achieve a 5 percent$89 millionincrease in productivity by moving
to a new consolidated facility. As BOE's assumption is unsupported, we conservatively assumed
a 0.5percent productivity increase each year for three years including a partial benet during its
rstyear of its phased move to the new consolidated facility.
Reduced the cost of lost
productivity due to the
need to move only once
$1,929,267
In Table 3 BOE assumes a productivity loss of roughly $7.7 million from temporarily moving
employees in the building at 80 hours per employee so that repairs may occur. This would be
reduced to 40 hours if BOE consolidates and moves only once to its new facility. However, because
BOE's estimate of the number of hours per employee move seemed high, we reduced this number
by half; thus, we assumed that the benet of consolidation would be 25 percent of the total
productivity loss calculated by BOE, rather than 50 percent.
Reduced the amount of
lost revenue due to the
need to move only once
$7,111,067
In Table 4 BOE assumes a loss in collected revenue of roughly $28 million from temporarily moving
employees from selected units in the building at80hours per employee so that repairs may occur. This
would be reduced to 40 hours if BOE consolidates and moves only once to its new facility. However,
because BOE's estimate of the number of hours per employee move was unsupported and seemed
high, we reduced this number by half to 20 hours; thus, we assumed that the benet of consolidation
would be 25percent of the total revenue loss calculated by BOE, rather than 50 percent.
Estimated Net Benet
from Consolidation
$3,196,011
Sources: State auditors analysis of data contained in tables 2, 3, and 4, and information on lease rates provided by General Services and the
Downtown Sacramento Partnership.
* This total includes $8.6 million for six months of lease costs for the building at 450 N Street (based on current lease costs of over $1.4 million per
month), plus $10.8 million for six months of lease cost at a new facility (based on BOEs estimate of a 586,000 square foot facility at slightly more
than $3 per square foot per month).

This total includes three years of productivity benets from working in a new, consolidated headquarters. Generally, we used a productivity benet
total of $8.9 million per year, which is one-tenth of BOEs estimate. However, because BOE envisions a phased move-in of employees during the
rstyear, we reduced this rst years benet total to $6.675 million (75 percent of full year).
General Services and BOE Have Not Determined the Most
Cost-Eective Procurement Method for a New Consolidated Facility
ToprocurefacilitiesforBOE,CeneralServiceswilllikelycontract
witlaprivateentity.Wewereaskedtodetermineandassess
tleextenttowliclCeneralServicesandBOElaveconsidered
27 California State Auditor Report 2014-108
September 2014
proposalsinvolvingpublic-privatepartnerslipsforlousingBOE
employeesandwletlertloseproposalswouldresultinacost
savingstotleState.Ina:o:report,tleLegislativeAnalysts
Oce(LAO)explainedtlatgenerallyapublic-private partnership
meanscontractingwitloneormoreprivatesectorentitiesfor
tledesign,construction,nance,operation,andmaintenanceof
aninfrastructurefacility.TeLAOaddedtlatcurrentstatelaw
autlorizesonlytlreedepartmentstleCaliforniaDepartment
ofTransportation,tleAdministrativeOceoftleCourts,and
tleCaliforniaHigl-SpeedRailAutloritytousesomeformof
apublic-privatepartnerslip.Accordingtotleassistantdeputy
directorofitsrealestateservicesdivision,CeneralServices
contractingwitlprivateentitiesintlepastlasladsimilarities to
public-privatepartnerslipsbutdiersinmanywaysandisnot
a public-privatepartnerslipbydenition.HeaddedtlatCeneral
Servicesdoesnotlavegeneralautloritytousepublic-private
partnerslipsandlasnotsougltlegislativeautloritytousesucl
apartnersliptoprocureafacilityforBOE.Ratler,leindicated
tlatCeneralServiceslastleautloritytocontractwitlprivate
entitiestoprocurefacilitiesusingslort-termleasesand,subject
toautlorityandfundingfromtleLegislature,mayalsouse
lease-purclase,leasewitlanoptiontopurclase,andcapitaloutlay
metlodstoprocureafacilityforBOE.
Altlouglcontractingwitlaprivateentitytoprovidetemporary
workspaceoranewfacilityforBOEislikely,neitlerCeneral
ServicesnorBOElasconductedananalysistodeterminetle
mostcost-eectiveactionfortleState.CeneralServicesandBOE
laveconsideredleasingspacefromprivateentitiestotemporarily
louseBOEemployeeswlileCeneralServicesrepairstlebuilding.
BOEstatedtlatitlasnotconductedanyocialcostanalysis
ofstraigltleasesbecauseitisCeneralServicesresponsibilityto
procurefacilities.Additionally,accordingtoitscliefconstruction
supervisor,BOEdoesnotlavestatutoryautloritytoacquire
facilitiesorrelocateitself.TeState Administrative Manual
requiresdepartmentstoinitiallysubmitarequestfornewor
additionalspacetoCeneralServicesandinsomeinstances
Financesapprovalmaybeneeded.Accordingtoitsmanagement,
CeneralServiceswilllikelycontractwitlaprivateentityfor
temporaryspacebecausetlereisnostate-ownedspaceintle
downtownSacramentoarealargeenougltoaccommodateBOEs
employeesduringremediation.However,accordingtotlecapital
outlaymanager,CeneralServiceslasnotdoneanycostanalysison
potentialleaseoptionsbecauseitbelievesitistooearlytoperform
suclwork.
CeneralServiceswouldalsolikelycontractwitlaprivateentity
toprovideanewfacilityforBOEifitrelocatesandconsolidates.
Weretlattobetlecase,CeneralServicesindicatedtlatif
Although contracting with a private
entity to provide temporary work
space or a new facility for BOE is
likely, neither General Services nor
BOE has conducted an analysis to
determine the most cost-eective
action for the State.
California State Auditor Report 2014-108
September 2014
28
autlorized,itwouldlikelycontractwitlaprivateentityfora
lease-typeagreementeitlerlease-purclaseorleasewitloption
topurclasetoconstructanewBOEfacility,againbecausetlere
arecurrentlynostate-ownedspacesintledowntownSacramento
arealargeenougltolouseBOE.Also,accordingtotlecapital
outlaymanager,tlescaleoftleprojectwouldmeritusingaprivate
entitysteclnicalexpertise.However,lefurtlerstatedtlatCeneral
Serviceslasnotinitiateddiscussionorconductedacostanalysis
regardingtleacquisitionandrelocationtoanewfacility.
WlileCeneralServiceslasprocuredfacilitiesintlepasttlrougl
lease-purclasesanddesign-bid-buildconstructionwitlprivate
entities,itcannotspeaktowletlercontractingwitlprivateentities
forBOEsrelocationandconsolidationprojectwouldresultin
costsavingstotleState.Tecapitaloutlaymanagerstatedtlat
ingeneral,suclarrangementsmaysaveup-frontcostsandgive
tleStateanadvantagebylavingaprivateentitytakeontlerisks
ofdevelopingafacility,buttlateaclprojectslong-termbenets
areuniquetotlegivensituation.Furtlermore,tlecapitaloutlay
managerexplainedtlatwlileCeneralServicespresentseconomic
dataonlease-purclaseandcapitaloutlayprocurementoptions
toFinanceattlelattersrequest,Financeultimatelymakestle
decisiononwlicloptionwouldresultintlemostdesirablecost
savingsandbenetstotleState.
General Services Should Proactively Evaluate Whether Continued
State Ownership of the Building Is a Sound Financial Decision
CiventlefacttlatBOEdesirestovacatetlebuilding,Ceneral
ServicesslouldbeanalyzingwlattleStatewoulddowitltle
buildingslouldBOEbeallowedtomove.However,itseortsin
tlisregardlavebeenverylimited.Accordingtostatelaw,Ceneral
Servicesmakestlenaldeterminationoftleuseofexisting
state-ownedfacilities.Additionally,tleOcialStatementfortle
bondsissuedtonancetlepurclaseoftlebuildingstatetlat
CeneralServicesisresponsibleformakingrentalpaymentstotle
PublicWorksBoardirrespectiveoftleoccupantoftlebuilding
andtlatCeneralServiceswouldidentifyoneormoreotlerstate
agenciestooccupytlebuildingiftleStatedecidedtorelocateBOE.
Intle:ostudydiscussedearlier,CeneralServicesidentied
severalpossibledepartmentstlatcouldmoveintotlespace.
Besidesbackllingtlebuildingwitlotlerstatedepartments,
anotleroptioncouldbefortleStatetoselltlebuilding.However,
accordingtotlecliefofitsassetmanagementbrancl,Ceneral
Serviceslasnotconductedfurtlerplanningtodeterminefuture
usesoftlebuildingbecausetleStatelasnotprovidedCeneral
Serviceswitltlefundingtodoso.AltlouglCeneralServices
Besides backlling the building with
other state departments, another
option could be for the State to sell
the building.
29 California State Auditor Report 2014-108
September 2014
lasreceivedfundingtoconductalong-rangeplanningstudyto
examinetleStatesspaceandinfrastructureneedsandrecently
enactedlegislationrequirestlatstudytoincludeanassessmentof
tleBOEbuilding,tleassetmanagementbranclcliefatCeneral
Servicesstatedtlattlescopeofworkfortleplanningstudywill
notbecompleteduntil:o,.
Civenitsgeneralautlorityinstatelawtomanagestate-owned
facilities,webelieveCeneralServicesslouldbemoreproactivein
assessingwletlertlebuildingslouldremainapartoftleStates
propertyportfolio.Wlenweaskedtleassistantdeputydirector
ofitsRealEstateServicesDivisionwlyCeneralServicesladnot
performedanappraisaloftlebuilding,lestatedtlatitwouldbe
clallengingforanappraisertoprovideanaccuratevaluebecause
tlerearenocomparablepropertieswitlintleSacramentoregion,
giventlebuildingscurrentcondition.Healsoaddedtlatto
conductanappraisal,CeneralServiceswouldneedtogetfunding
anddirectionfromtleadministration.Nevertleless,becauseofits
broadstatutoryresponsibilitiescoupledwitltlesignicantcoststo
repairtlebuildingandpotentialfuturelegalliabilities,webelieve
itwouldbeprudentforCeneralServicestoseektlefundingand
approvalneededtoanalyzetlefutureuseoftlebuilding,including
anappraisal,toensuretlatmaintainingownerslipandrepairing
tlebuildingistlebestnancialdecisionfortleState.
Recommendations
Tomoreclearlydemonstrateitscaseforanewfacility,BOEslould
dotlefollowing:
Ensuretlatitlasasupportablerationalefortleassumptions
underlyingitsanalysisoftlecostsandbenetsofmovingtoa
newconsolidatedfacility.
Continueitsplanstoconductastudytoidentifyineciencies
initscurrentspatialcongurationandlowitsoperationscould
improvewitlanewconsolidatedfacility.
Incorporatestanggrowtlintoitsanalysisofcostsandbenets,
usingprojectionsbasedonlong-termlistoricaldata.
Toensuretlatitcanaccuratelyestimateanysliftsinworker
productivityandstaterevenue,BOEslouldstrengtlenits
currentmetlodologybyanalyzingtleproductivityandrevenue
collectionofitsemployeesandbymonitoringtlosemetricsatleast
semiannually.Additionally,BOEslouldsupportitsmetlodology
witldocumentation.
30 California State Auditor Report 2014-108
September 2014
Toensuretlatresourcesarespentwisely,CeneralServicesslould
seektlefundingandapprovalneededtoanalyzewletlerkeeping
orsellingtleBOEbuildingwouldbeintleStatesbestnancial
interest.Aspartoftlatanalysis,CeneralServicesslouldconduct,
orcontractfor,appraisalstoassesstlevalueoftlebuildingwitl
andwitlouttlerepairstodeterminewletlermakingtlerepairs
isintlebestinterestoftleState.Ifcontinuedownerslipoftle
buildingappearstobeprudent,CeneralServicesslouldevaluate
potentialproductiveusesfortlebuildingslouldBOEmoveto
anewfacility.CeneralServicesslouldreporttleresultsofits
analysistotleLegislaturenolatertlanSeptember:o,.
WeconductedtlisauditundertleautlorityvestedintleCaliforniaStateAuditorbySection 8,(
etseq.oftleCaliforniaCovernmentCodeandaccordingtogenerallyacceptedgovernmentauditing
standards.Tosestandardsrequiretlatweplanandperformtleaudittoobtainsucient,appropriate
evidencetoprovideareasonablebasisforourndingsandconclusionsbasedonourauditobjectives
speciedintlescopesectionoftlereport.Webelievetlattleevidenceobtainedprovidesa
reasonablebasisforourndingsandconclusionsbasedonourauditobjectives.
Respectfullysubmitted,
ELAINEM.HOWLE,CPA
StateAuditor
Date: September:,,:o(
Sta: BenjaminM.Belnap,CIA,AuditPrincipal
VanceW.Cable
BrianD.Boone
VivianClu
LegalCounsel: ).ClristoplerDawson,Sr.StaCounsel
Forquestionsregardingtlecontentsoftlisreport,pleasecontact
MargaritaFernndez,CliefofPublicAairs,at,6.((,.o:,,.
31 California State Auditor Report 2014-108
September 2014
32 California State Auditor Report 2014-108
September 2014
33 California State Auditor Report 2014-108
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34 California State Auditor Report 2014-108
September 2014
Blankpageinsertedforreproductionpurposesonly.
35 California State Auditor Report 2014-108
September 2014

* California State Auditors comments begin on page 39.


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36 California State Auditor Report 2014-108
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37 California State Auditor Report 2014-108
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1

(
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A
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)
39 California State Auditor Report 2014-108
September 2014
Comments
CALIFORNIA STATE AUDITORS COMMENTS ON THE
RESPONSE FROM THE STATE BOARD OF EQUALIZATION
Toprovideclarityandperspective,wearecommentingontleState
BoardofEqualizations(BOE)responsetoouraudit.Tenumbers
belowcorrespondtotlenumberswelaveplacedintlemarginof
BOEsresponse.
BOEistoonarrowinitsinterpretationofourrecommendation.Te
studyBOEdescribeswouldprovidesupportforsomecomponents
ofitscost-benetanalysis,butitwouldnotprovidesupportable
rationaleforallunderlyingassumptions.Forexample,aswe
describeonpage8,certainassumedleasecostsintleanalysisalso
needsupport.Atimeandmotionstudywouldnotprovidetlisand
allotlercomponentsoftleanalysis.
TisrentalescalationfactortowliclBOErefersisentirely
independentoftlerateofstanggrowtlreferredtoinour
recommendation.Furtler,BOEisreferringtoitsownassumption
ofapercentescalationinfuturerentsonleasedfacilities,afactor
itladnosupportforduringtleaudit.IfBOEnowbelievesrent
increasesofpercentismorereasonableandlasadequatesupport,
tlenitslouldmakewlateveradjustmentsarenecessarytoits
analysis.Welookforwardtoreviewingtlesupportfortlisfactorin
BOEs6o-dayresponsetotleaudit.
AltlouglBOEmaylavedevelopedanewmetlodologytotracktle
productivityandrevenuecollectionofitsauditorsandcollectors
basedondiscussionswitlourauditors,welavenotseenor
evaluatedtlisnewmetlodology.Terefore,welookforwardto
reviewingitaspartofBOEs6o-dayresponsetotlisaudit.
BOEreferstoandattaclesanexlibititdidnotfullyuseinits
owncost-benetanalysis.Onpage::wedescribetledraft
worksleettlattlecliefconstructionsupervisorprepared,wlicl
BOEattacledtoitsresponseandreferstoasexlibit.Wlen
analyzingtlecostsandbenetsofconsolidatingitsstaintoanew
facility,BOEdidnotincludealloftleneededsquarefootageinits
calculation.Asaresult,itscost-benetanalysiswasincomplete,as
wedescribeonpages6and;.
1
2
3
4

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