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State may sell buildings, then pay developers rent

By Andrew Gomes

LAST UPDATED: 2:26 p.m. HST, Aug 5, 2011

Renovating or replacing some state buildings that aren't being maintained well because of constrained state finances could become a job for private developers under a new Hawaii law.

The law allows the state Department of Accounting and General Services to sell buildings under its ownership to developers with an agreement by which the developer pays for upgrades and the state pays to rent the improved facilities.

Under the law, the state would retain ownership of land under such buildings, and would have an option to buy back the buildings.

State spending cuts have caused a backlog of deferred building maintenance, and DAGS more or less has been limiting repairs to the most critical items or safety problems. However, the agency isn't sure whether it will use the new option for financing building repairs.

"As an alternative it's a nice one to have in your back pocket, but I don't know I'm going to be pulling it out," said Bruce Coppa, DAGS director.

Concerns have been raised that the law, which originated as House Bill 1505, could end up making it more expensive in the long range to own and maintain buildings, given that developers will need to earn a return on their investment through charging the state rent.

"We have concerns on whether it is more cost effective for a private investor to invest the capital needed to renovate the state facility instead of the state using capital improvement funds to renovate the facility," Kalbert Young, director of the state Department of Budget and Finance, said in written testimony.

Young said selling public buildings and leasing them back has been done in other states, and that there could be long-term financial benefits depending on the terms negotiated and other factors.

Gov. Neil Abercrombie submitted a notice of intent to veto the bill, but instead signed it into law recently.

The law applies only to property owned by DAGS, which excludes schools, parks, harbors, airports and other facilities. DAGS provides building repair, maintenance and alteration services for 164 facilities, including office buildings, libraries and health centers. Aloha Stadium is another property owned by DAGS.

Replacing the deteriorating stadium has been considered for privatization, though Coppa said a committee is being formed to determine the best approach for maintaining or replacing that facility.

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