Despite High Cost, State Tilts Toward New Construction

Co-location of state agencies is the concept of grouping them in a common facility to improve delivery of state services and save taxpayers money. Whether co-location across the state will achieve these goals remains to be seen, but taxpayers should be aware that the colocation project legislators are considering in Spokane county will cost them plenty.

The first phase of the Spokane co-location project calls for construction of a new, 125,000-square-foot, five-story office building near the Spokane County Courthouse. Another 125,000-square-foot “twin” building is anticipated in the future. The first building will cost between $16.5 million and $19 million, which equates to $132 to $152 per square foot. Now that’s an expensive building, even by government standards!

The fact is there are other, far less expensive alternatives to this project. For instance, the state might make a concentrated effort to locate the project in an existing building or buildings. While this might not be quite as prestigious as owning a brand new building, it would certainly be easier on taxpayers’ pocketbooks.

Good deals do exist. The Paulsen Building in downtown Spokane sold last fall for $3.8 million, or $19 per square foot. The Washington Mutual Building sold for $11 million, or $45 per square foot. Both buildings are considerably larger than the proposed building and could have been acquired for significantly less money. In both instances, if state bureaucrats had just looked for bargains instead of glitz, taxpayers would have saved at least 50 cents out of every dollar the state is proposing to spend on the new project.

The state claims that in the next 25 years this project will save taxpayers about $4 million over what agencies would pay if they stay in their current leasing arrangements. But careful review of the state’s analysis reveals it made some questionable assumptions, and the state gave the new project the benefit of the doubt throughout its analysis. From overstating the cost of existing leases to severely underestimating the cost of providing adequate parking, to underestimating the building’s operating and maintenance costs, the state repeatedly made unrealistic cost estimates and miscalculated the project’s ultimate price tag.

A few realistic assumptions in the financial analysis make it apparent taxpayers not only won’t save money on the building, they could lose $25 million or more over the 25-year term. The bottom line is the state failed to conduct an objective financial critique of the project and in fact skewed its review in favor of the new construction.

This kind of biased analysis appears to be common in state government. The Legislative Budget Committee, a bipartisan legislative “watchdog” committee, plans to study the capital budgeting and planning process because of continuing concerns by legislators and others about planning and budgeting for such projects.

In a recent memo, LBC auditors are quoted as saying, “LBC staff have encountered questionable analytic techniques used in support of capital projects.” Later in that memo they state: “LBC staff learned that some financial techniques used by the state to evaluate capital projects may overly encourage investment in new capital projects.” Apparently, the state has a bias for building new buildings that goes beyond the proposed Spokane project.

Regardless of whether co-location is a good or bad idea, or whether the state’s analysis is accurate, one thing is indisputable. By the state’s own estimates, this 125,000-square-foot project will cost $16.5 million to $19 million to complete. While it will be a shiny new building for state government, the fact remains it will cost nearly twice what the state might be able to obtain if it simply cared more about taxpayers’ pocketbooks and less about building its own empire.

Clearly, there are less expensive alternatives. Common sense requires that realistic, objective cost estimates be conducted and that every alternative be exhausted before taxpayers are asked to foot the bill for yet another costly government scheme.

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