…for a hamburger statehouse today. In all seriousness, this sounds like an excellent plan. Arizona is going to sell public buildings in exchange for a twenty year lease.
It’s a bit unusual to sell a state capital, state hospital, prisons and park visitor centers, but when you have a billion and a half dollar deficit to make up between now and July, Arizona Department of Administration spokesman Alan Ecker says you do unusual things.
Mr. ALAN ECKER (Spokesman, Arizona Department of Administration): The proceeds will be going to – straight into the Arizona state general fund to offset the budget crisis that we’re dealing with.
ROBBINS [NPR reporter]: The total – $735 million, Arizona would then lease back the buildings over 20 years. Investors would buy $5,000 certificates of participation and get an estimated four to five percent interest a year. The question is, how safe is an investment in the state of Arizona? Its credit rating was downgraded just last month because of its budget crisis. But Alan Ecker says, in this case, we’re talking about buildings which have to operate if Arizona remains a state.
Mr. ECKER: So the state would be very, very unlikely to ever default on payments and walk away from those facilities. So investors should have a strong piece of mind.
NPR doesn’t attempt any analysis of the proposal. Why bother, when the state’s own spokesman assures us “investors should have a strong piece of mind?” Turns out this is old news, which we covered. Arizona Central reports:
Under the most recent legislative proposal, the state would seek a series of lease arrangements spanning as much as 20 years. Deals that would generate the targeted $735 million in revenue would mean state lease payments totaling $60 million to $70 million a year, according to budget analysts.
Over two decades, that would equate to at least $1.2 billion in lease payments. Once the leases had expired, the state would again take ownership of the properties.
House Majority Leader John McComish called the payments preferable to a tax increase, as proposed by Brewer, or alternative fiscal schemes such as selling future income from state Lottery sales in exchange for a lump-sum payment.
“What are our choices?” asked McComish, a Phoenix Republican. “We could cut more, or we could raise taxes more. Borrowing over the long term, we think, is better for the people, better for the economy.”
Arizona can’t afford the current level of spending, but instead of cutting spending McComish thinks it’s wise to engage in budgetary games that will cost the state an extra 63%. That’s politically easier than being responsible and cutting spending. Maybe the state should sell endorsements, like professional ballparks. I would love to take a tour of the Arizona State Capitol, brought to you by the good people at Pampers.
Eileen previously gave a tentative thumbs up to these kinds of deals as examples of privatization, but as the comments to her post pointed out, selling state offices is akin to selling off state-owned railways. Instead, this is just a gimmick at the expense of future taxpayers. Eileen has a forthcoming issue of Mercatus On Policy on budgetary gimmicks.