Thread: Arizona Sells Supreme Court Bldg for 3 Month's School Aid

Tuesday, June 08, 2010

Arizona Sells Supreme Court Building in 20 Year $300 Million Leaseback Deal for 3 Month's School Aid

Going into long term debt to pay short-term operating expenses is fiscally unsound. Going into debt for 20 years for 3 months operating expenses is beyond the absurd. Nonetheless, that is exactly what Arizona did.

Inquiring minds are reading Arizona Sells Supreme Court Building in $300 Million Bond Deal. http://www.bloomberg.com/apps/news?pid= ... 9vuhcdwLig

Arizona, which sold state prisons and offices to raise cash six months ago, plans to borrow $300 million by marketing its Supreme Court building and about a dozen more properties through leaseback bonds starting today.

Investors will hold ownership of the court building in Phoenix, the fifth-largest U.S. city, and the Arizona Schools for the Deaf and the Blind in Tucson for as much as 20 years, with the securities maturing serially from 2012 through 2029, according to offering documents. Lease payments will back the debt, known as certificates of participation.

Arizona, whose foreclosure rate last year was ranked second-highest after Nevada by RealtyTrac Inc., will use the sale to pay for three months of school aid. The state raised $709 million for education payments when it sold and then leased back nine properties to investors in January.

“From an investor point of view, this is great,â€

Infrastructure Sales.

I have posted many times on this here and else where. This is an issue that seems to go by with little or no notice. This is how it works...

1. America donates or builds things....from land reserves to roads and bridges to buildings...all this is called infrastructure.

2. The new legislation is allowing the sale of EVERYTHING!!!

3. Many things such as buildings are then leased back to the buyer at "guaranteed" prices of full occupancy for terms of up to 30 years...even though the building was never full in the first place. The final cost at least twice what it was sold for...just for RENT!!!

So...Tax money and donations build or reserve things...in essence owned by the people of the USA. WE paid for it and own it. It is sold...now we have nothing...the money is spent to pay off interest on money that was borrowed "for us" and now that money is gone too. And then we have to pay rent on a building that we owned free and clear.

Is this not a great nation...


http://www.alipac.us//ftopict-201681-.html

This is happening all over America...not just in Arizona.

Arizona sets 2nd phase in sale of buildings
State is hoping to raise $300 mil in leasebacks
4 commentsby Mary Jo Pitzl - Jun. 2, 2010 12:00 AM
The Arizona Republic

More state buildings go up for sale next week, as officials hope to raise $300 million by selling and then leasing back the schools for deaf and blind children, more state prisons and other structures.

It's the second time this year that the state has sold buildings to help close the state budget deficit. A sale-leaseback in January raised $735.4 million for the state. The healthy response prompted lawmakers to authorize a second sale. Proceeds will be used to balance the current-year budget.


The sale begins Tuesday, and will continue until the $300 million has been raised. Investors will be required to make purchases in $5,000 installments, according to information on the Arizona Department of Administration's website.

Investors must work through a list of underwriters provided by the state.

A full listing can be found at www.azdoa.gov/news.

The state retains control of the buildings, which it will continue to occupy and lease back from investors.

The sale-leaseback comes on the heels of last week's action in which the state borrowed $450 million against the proceeds of future state Lottery revenues. The money also will help balance the current-year budget. Those bonds carried an interest rate of 4.27 percent.

Next week's sale-leaseback is expected to carry a similar interest rate, said Michael Smarik, deputy state comptroller, although the rate won't be set until next week.

While the sale-leaseback provides quick cash for the state, it also costs the state more in the long run. The $735 million sale-leaseback from earlier this year carried $400 million in interest costs over 30 years, for a total payback of $1.1 billion.

It's hard to calculate the cost to the state of Tuesday's offering until the interest rate is set.

Read more: http://www.azcentral.com/community/phoe ... z0ppiLMCCS

Worries increase along with Arizona's debt
101 commentsby Mary Jo Pitzl - Jun. 9, 2010 12:00 AM
The Arizona Republic .

Imagine selling your house to raise money - and then leasing it back, with interest, over 30 years.

That's essentially what Arizona is doing this week as it conducts a two-day sale of state buildings. The sale, which concludes today, is expected to net the state $300 million. But it will cost much more to repay when interest is added, and it will contribute to raising the state's total debt load to more than $10 billion, a figure five times as great as a decade ago.

Paying off that debt will strain state budgets for years to come. For the fiscal year that starts July 1, the state must make a $232 million debt payment out of its general fund.

This latest borrowing to help cover the state's massive budget deficit is a stopgap measure, which some politicians say will leave Arizona having to spend hundreds of millions of dollars a year on repayments that could have been spent on programs or used to reduce taxes.

"For a conservative Legislature, which is what we've tagged ourselves, we've borrowed a huge amount," said state Rep. Bill Konopnicki, R-Safford.

He tried in vain to get the Legislature to consider a budget plan that would have aggressively paid down the debt, retiring most of it in five years instead of the current 20- and 30-year time frames. It would have required tax hikes, but it would have been more honest than saddling future legislatures and taxpayers with tax increases to pay for today's spending, he argued.

The state budget, he said, is headed for a car breakdown by adding debt.

And Konopnicki said the breakdown is fast approaching.

"All the lights are on the dash - oil, gas - and we're driving as fast as we can," he said.


A quick fix

Debt has been a quick but uneasy solution to budget pressures.

As state tax collections lagged and demand for state services grew, lawmakers and Gov. Jan Brewer scrambled for ways to balance the budget. They drained the state's "rainy-day fund," cut spending and delayed big-dollar payments to schools. It wasn't enough.

They anguished for more than a year before sending Brewer's temporary 1-cent-per-dollar sales-tax increase to the ballot, where voters last month passed it.

Meanwhile, lawmakers borrowed to patch over the holes in the budget. Earlier this year, the state did a sale-leaseback of government buildings, including legislative offices and the Executive Tower where the governor works, to net $735 million in quick cash. With interest, repayment is estimated at $1 billion. Last week, they raised $450 million by issuing bonds against the proceeds of future state Lottery games. That will cost $680 million when interest is added.

This week's sale includes the Arizona Supreme Court building, which the state just finished buying back from an earlier lease-purchase agreement.

As lawmakers OK'd borrowing to pay for day-to-day expenses, rather than long-term projects, alarm bells started sounding this spring in some corners of the Legislature. But House Appropriations Chairman John Kavanagh, R-Fountain Hills, spoke for many of his colleagues when he said, "The B-word is better than the T-word," meaning it was better to borrow than to raise taxes.

Lawmakers reluctantly acknowledged that borrowing was needed to pay for day-to-day expenses, as opposed to long-term projects such as construction, which uses buildings as collateral.

In all, lawmakers have borrowed $3.8 billion against the state's general fund. It will be paid back in installments over the next 20 to 30 years.

In addition to the general-fund debt, the state has an additional $6.3 billion in debt in the form of bonds to pay for highway, university and prison construction. Those projects are repaid out of dedicated lines of money through fees.

But that doesn't count the $952 million in delayed school payments, which some lawmakers consider debt but others view as closer to a skipped credit-card payment.


Growing concern

Senate President Bob Burns, R-Peoria, pulled together a plan to rein in state debt. But his proposal to ask voters to create a constitutional debt limit tied to property values was stalled in political horse-trading over a tax-cut bill.

Burns said lawmakers need to get serious about reducing debt. "I call it a credit-card mentality," he said. "They've been living on one credit card, and when that runs out, they go get another one."

Now, he said, "it's a problem that is so big, people are reluctant to deal with it."

Although $10 billion is a big number, Arizona is in relatively good shape compared with other states, said Andrew Biggs, a resident scholar at the American Enterprise Institute. "Arizona, altogether, is not worse off than other states," Biggs said.

In his debt analysis, which includes state pension-fund obligations, Arizona ranks 39th in overall debt out of the 50 states.If pension funds are excluded from the state-by-state analysis, Arizona's budget debt shrinks even more, putting it on par with states such as Minnesota, Oregon and North Dakota.

But national rankings are little comfort to lawmakers such as Burns.

"We're close to maxed out," he said. "There are no assets left to sell, and who's going to loan us money?"

Konopnicki, from the other side of the Capitol, echoes the bleak options: "We're a perfect candidate for foreclosure, for not being able to pay our bills."


Constitutional limits

Burns' proposed constitutional cap acknowledged that the current debt limit - $350,000 - is sorely out of date and widely ignored.

Lawmakers have invented creative ways of borrowing without calling it "borrowing" - thus, the K-12 "rollovers," which delay monthly state payments to the public-education system until the coming fiscal year. Currently, lawmakers have rolled over three months' worth of payments, or $952 million, from this year.

Many Capitol observers, including lawmakers, figure it will take a lawsuit to get the state to take its debt limit seriously. The Goldwater Institute, widely seen as the group that might do just that, is noncommittal.

But Brian Schlomach, an economist at the think tank, said the creative financing that has led to growing debt is noticed. "I've been surprised they've been able to kick the can this long," he said.

Burns, who is retiring from the Legislature, said that to balance the budget, lawmakers almost certainly will have to face steep cuts in education and health care, two of the largest segments of the budget. Lawmakers have shown a reluctance to add further reductions to the ones they've already made. The passage of Proposition 100 last month, with its sales-tax proceeds earmarked for those very areas, has created an expectation those areas will be spared the budget knife.

Tax hikes are equally problematic, given that voters just agreed to a temporary sales-tax increase.

This dilemma will greet lawmakers and the next governor when they arrive at the Capitol in January.

Read more: http://www.azcentral.com/arizonarepubli ... z0qOY75UqY