The Forever Business

Got a hole in your budget? Cut spending. Shake the couch for spare change. Raid your savings. Ask for a raise, if you think you can get away with it. And when all else fails, sell your assets, right?

When Arizona needed money last year, its tax-averse lawmakers decided to balance the budget by selling some buildings and leasing them back from the investors. Ding! They raised $735.4 million for their general fund and have a 20-year layaway plan to pay it all back.

But not in Texas. In fact, the folks who handle the state’s real estate are focused not on the current budget mess, but on ambitious building plans they say will make long-term financial sense: getting state agencies and employees out of expensive building leases and into new buildings owned by taxpayers. They’re also looking at plans for private development on state land along a seven-block canyon of parking garages and smaller buildings near the Capitol.

Early plans include 1.3 million square feet of space in three new office buildings just north of the Capitol, on land now used for parking lots. A mall — the park kind, not the shopping kind — would run on a four-block section of Congress Avenue from the north side of the Capitol to the Bob Bullock Texas State History Museum. Underground parking would replace the surface lots and garages that would be replaced by office buildings.

This isn’t designed to solve the state’s current budget mess — a gargantuan shortfall that’s estimated, very roughly, at between $15 billion (optimists) and $28 billion (pessimists) over the next two years.

In fact, the authors of this plan aren’t going to pitch it to the Legislature during next year’s session. It requires bonds, and borrowing money for new construction is not likely to be on the agenda of lawmakers who are making the kinds of cuts that cause politicians to blanch and voters to seethe. They also don’t know how big a work force they’ll be trying to shelter. Budget-writers like House Appropriations Chairman Jim Pitts, R-Waxahachie, have been warning constituents for months that agencies could be eliminated or deeply cut and that state employees could be furloughed or laid off.

Still, officials at the Texas Facilities Commission are planning, and building a rationale for, new state office buildings. They’ve chosen the locations. They’ve compiled a report showing how many leases will expire over the next 10 years, and how many will be replaced by new and possibly more expensive leases or by state space built with bonds and owned by taxpayers. Their conclusion is that state offices are cheaper, that the state is better off not selling its properties, and that the idea of private buildings on public land is a money-maker.

It has been done before, after all. Elsewhere in Austin, there’s a Central Market grocery store and shopping center, a condominium complex and a specialty hospital built on ground that’s leased from the state. A little to the north is another mixed-use, private-sector development on state land, also built on a ground lease.

Aundre Dukes, the facility commission’s portfolio manager and public liaison, calls it “non-tax revenue,” by which he means the state is bringing in revenue that’s not from taxes.

The state owns 4.5 million square feet of office space, but it rents more: 1,012 facilities, in 289 cities, housing 40,735 employees, in 9.2 million square feet of space, according to the commission. Most of those leases, 73 percent, will expire sometime in the next six years. The state spent an estimated $148.1 million on leases in fiscal year 2010.

The state owns the land it needs. In the commission’s language, “current holdings exceed growth requirements and represents significant perpetual non-tax revenue generating opportunities.” That’s another way of saying they have the land they need and could allow about 6 million square feet of private sector office construction on 21 acres of leased state land around the Capitol.

They’re already shopping their site plans to local government and business people, and once they know the size of the state’s Austin work force — that’ll be in the next budget — they’ll start planning in earnest. And they won’t be selling off their real estate. “The state’s in the forever business,” Dukes said. “We need more buildings.”