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Empty Building Costly for State: $118,000-a-Month Rent Paid for Unoccupied Office Space

Posted on: Wednesday, 5 April 2006, 12:00 CDT

By Adam Wilson, The Olympian, Olympia, Wash.

Apr. 5--The views are nice, the $118,000-a-month rent is paid but nobody is home.

The state is stuck paying rent for an empty nine-story building in downtown Olympia for as much as 11 months.

The situation is appalling to some, an example of how poor state planning leads to waste of taxpayer dollars. State officials say the problem is temporary and worth the long-term savings achieved by leaving the building for a better one.

At issue are a series of agreements that led to the Washington State Patrol and the Department of Corrections splitting the rent and utilities for the vacant Capitol Center building just north of Capitol Lake.

The Corrections Department moved out of the building last fall, taking more than 400 workers to a newly constructed office in Tumwater. The last of its programs and most of the remaining furniture were moved in March, leaving the state with 89,000 square feet of unused space and 11 months remaining on its lease.

Nearly $1.3 million is left to be paid on the lease.

Paying the rent won't mean cuts to basic services, say officials at both corrections and the state patrol, but neither department is sure exactly where the money will come from.

"When I heard about it, I was pretty appalled," said Rep. Gary Alexander of Thurston County, the lead Republican budget writer in the House. "I don't think that's a very good use of taxpayer dollars. It seems to me that this is not a very effective way to manage space."

However, the state will save money in the long run by leaving Capitol Center, said Bob Bippert, senior deputy assistant director of the Department of General Administration. The department acts as property manager for state agencies.

"We weighed what our long-term cost savings would be and it far outweighed what our short-term costs were going to be," Bippert said. "We think it was the right thing to do. We've got nothing to hide on this. Any private-sector business would have made the same decision."

The state will save $13 million over the term of the its 23-year lease-to-own agreement for the new Tumwater building, compared with the cost of remaining in its old offices, he said.

The state pays about $23 a square foot for new office space, such as the new building used by the Department of Social and Health Services on Cherry Street in Olympia, Bippert said. By comparison, the new Tumwater building costs $20.10 a square foot, and the Capitol Center cost about $16.50 a square foot, he said.

Capitol Center, although cheaper, would have needed major renovations to be useful in the future, particularly compared with the energy-efficient building to which corrections moved, he said.

"It's the difference between driving a Yugo and driving a Cadillac, that's about the best way I can put it," Bippert said.

The situation with Capitol Center is rare, he said. The state usually tries to move programs at the end of their leases, or "backfill" a vacated space with a different agency, he added.

This deal is unusual because the Washington State Patrol originally was supposed to move into the Tumwater building, located near the Department of Labor and Industries, under a 2003 plan approved by then-Chief Ronal Serpas.

But the State Patrol later learned it would cost at least $625,000 a year more than expected to move to Tumwater. And legislators said they wanted the patrol to remain on the main Capitol Campus, where it can provide a police presence.

A new patrol chief, Lowell Porter, decided to pull out of the Tumwater construction project in 2004. Instead, the agency consolidated more of its offices in the General Administration Building on the Capitol Campus.

"The decision was made that 'Hey, we can't afford to do this because of these unanticipated costs that came up,' and there was concern about whether State Patrol would move off the campus," said patrol spokesman Capt. Jeff DeVere.

As part of the deal, the Department of Corrections took the patrol's spot in the Tumwater building, and the patrol agreed to pay 50 percent of corrections' lease at Capitol Center, DeVere explained.

At the time, General Administration was confident it could find new government occupants for Capitol Center and relieve the Corrections Department and the State Patrol of their rental burden.

But no agencies want to use the space. Parking in the downtown area is scarce, the 1965 building's heating and cooling systems need upgrades, and the layout of its internal steel skeleton makes arranging for large offices difficult.

"We can't get anybody to look at the building, hardly," Bippert said.

The state also asked the building's owner, Jim Potter of Seattle, to consider a buyout of the lease, he said.

"Obviously, they don't want to pay the money. Obviously, our position is they need to meet the terms of the lease," Potter said. "We didn't create this problem. We keep telling them that."

Potter bought the building midway through the lease with the state. He also recently purchased the old Capitol City Press building and has proposed building condominiums in downtown Olympia.

Potter said he didn't want to discuss any buyout deal for the Capitol Center lease in public, but added he plans to renovate the building and he would like to have the state as a tenant in the future.

Both the State Patrol and the Department of Corrections had hoped another agency would step in to rent the building by now. Neither department has an appropriation from the Legislature to cover the rental cost and must carve it out of its operating budget instead.

"It's a situation we're hoping will resolve itself in the not- to-distant future," said Gary Larson, a spokesman for the Department of Corrections.

"We don't have money in the budget for the payments, so as time goes by, we're going to have to make some adjustments," he said. "We don't see any reason to believe that this will require major cutbacks in our offender programs or anything like that."

And if the State Patrol must continue to pay its half of the Capitol Center lease, the cost still would be cheaper than moving to Tumwater, DeVere said.

Lawmakers said they simply are not happy taking a financial hit for empty space, even if it will save money over time.

"Not good stuff," said Rep. Hans Dunshee, D-Snohomish, the lead construction budget writer in the House. "These folks move around, and there's got to be better coordination."

Dunshee said the situation is an example of why he thinks agencies should have less independence in deciding where to locate.

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Copyright (c) 2006, The Olympian, Olympia, Wash.

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Source: The Olympian, Olympia, Wash.

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