Building and Planning Services

State-owned Leased Office Space

The Arizona Department of Administration (ADOA) is responsible for the allocation of space, operation, alteration, renovation, and security of its state-owned space in the Capitol Mall, Phoenix, Tucson, and Kingman.

A state agency using space in a building that is owned or leased to the state pays rent to ADOA for deposit to the Capital Outlay Stabilization Fund (COSF) or makes lease-purchase payments pursuant to A.R.S. §41-792.01, unless otherwise exempted by statute.

Vacating State-Owned Space
An agency may request to vacate its space in a state-owned facility. Before vacating space, an agency must contact BPS for advance planning. An agency will continue to accrue and to be obligated for its legislatively appropriated COSF rent and lease purchase payments, or the pro-rata amount based on occupancy, whichever is greater, until re-allocation of its space to another paying state agency tenant.

Lease-Purchase Facilities
The ADOA General Accounting Office (GAO) calculates the agency lease-purchase payments. ADOA GAO transfers the entire amount of the rent assessed on each state agency from the agency account to COSF at the start of each fiscal year.

The lease-purchase payment for state agencies is the greater of the amount included in each agency’s annual operating budget, as reported by the staff of the Joint Legislative Budget Committee, or the pro-rata adjusted amount based on occupancy.

Lease-purchase payments do not include an operating cost component, such as utilities, routine maintenance, grounds services, operating supplies, janitorial services, and major maintenance (building renewal).

COSF Facilities
State agencies occupying ADOA-managed COSF facilities pay a rental fee for office space and/or storage space. ADOA invoices and collects an agency’s legislatively appropriated COSF rent or the pro-rata amount based on occupancy, whichever is greater, and deposits the rent into COSF at the beginning of each fiscal year or on an alternate payment schedule approved by the Joint Committee on Capital Review (JCCR).

The Lease Cost Review Board (LCRB) recommends to the ADOA director a rental rate charged to state agencies for using space in state-owned buildings. After recommendation by the ADOA director, JCCR determines the COSF rent rate for state agencies occupying state-owned buildings.

The intent of COSF rent monies is to cover a majority of the costs associated with the operations of state-owned and -managed buildings, including lease-purchase facilities. These costs include utilities, routine repairs and maintenance, grounds services, janitorial services, operating supplies, and major maintenance (building renewal).

The COSF Dilemma
ADOA owns, manages, or provides operations assistance for over 4 million Gross Square Feet (GSF) of office space, parking garages, mechanical buildings, and special-use facilities such as laboratories and data center operations. Only 1.3 million GSF (32.2%) in 36 buildings generates the COSF monies that provide the operating monies for utilities, routine maintenance, grounds services, operating supplies, janitorial services, and operations staff salaries. The majority of structures benefitting from COSF, 2.7 million GSF (67.8%) of legislative and lease-purchase facilities are wholly exempt from any payment of rents or operating costs.

In addition to supporting the operations and maintenance of the structures previously mentioned, in recent years COSF was the sole source of appropriated building renewal monies for more than 3,500 structures owned by more than a dozen ADOA Building System agencies. COSF revenue-generating structures represent just 1.3% of structures (6.7% of GSF) that are dependent on non-dedicated funds sources for building renewal. Generally, COSF appropriations for building renewal are budgeted only after other expenditures have been obligated. Examples of appropriations made from COSF for non-COSF revenue-generating structures include the following:

• the utilities costs for the Arizona Supreme Court facility;
• the bulk of utilities costs, routine maintenance, grounds services, operating supplies, janitorial services, and building renewal for Legislative and lease-purchase buildings;
• the operating costs for ADOA General Fund functions of $5,200,000;
• the annual lease-purchase payment and operating costs for the State Health Lab of $1,578,000;
• the annual lease-purchase payment for the Arizona Historical Society’s Tempe Museum of $194,200; and
• other various capital projects.

Since the present approach is not sufficient to fund operations and maintenance properly or to prolong the useful lives of over 4 million GSF of COSF-supported structures and the ADOA Building System building renewal formula, it is necessary to re-evaluate appropriations made from COSF.

Capital Outlay Stabilization Fund (COSF):
A.R.S. §41-793 establishes COSF and allows ADOA to collect rents and tenant improvements charges from agencies occupying state-owned space.

Lease-purchase payment:
Sometimes referred to as a “COP,” or Certificate of Participation, which is a financing mechanism.

Privatized Lease to Own (PLTO):
PLTO refers to a unique public – private financing arrangement used to design, construct, and manage three office buildings on the Capitol Mall located at 100 North 15th Avenue, 1100 West Washington, and 150 North 18th Avenue. PLTO structures do not contribute nor benefit from COSF monies as a tenant’s PLTO payments include the principle, interest, operations & maintenance, and major maintenance requirements, facilitating timely and appropriate “self-support” of routine operations and major maintenance requirements.