By Senator Buddy Carter
“Shall the Constitution of Georgia be amended so as to provide for a reduction in the state’s operating costs by allowing the General Assembly to authorize certain state agencies to enter into multiyear rental agreements?’
Have you ever wondered why government isn’t run more like a business?
Running government more like a business is why I sponsored SR84 that calls for the above constitutional amendment to be voted on by the citizens of Georgia during the general election.
Currently, Georgia can only enter into one-year leases. If passed, Amendment # 2 would allow our State to enter into multiyear rental agreements just like private businesses do.
In 2007 the State Properties Commission (SPC) performed a survey of the public sector to see how the state could do a better job of managing our leasing program. The survey pointed out some interesting facts.
- Only one other state, Missouri, was using one-year leases for their rental properties.
- Among the AAA bond-rated states like Georgia, nearly all have multi-year leasing as their standard policy with no observed risk between lease term limits and bond rating.
Currently, there are three divisions of state government- the State Properties Commission (SPC) (which manages most of the states properties), the Department of Labor (DOL) and the Board of Regents of the University System- that can sign leases on behalf of the State. Between the three of these agencies there are nearly 600 leases with an annual rent of over $350 million.
Perhaps the most important point to note here is that the average occupancy duration for state leases is 10.7 years- even with us signing only one-year leases.
The benefits of multi-year leasing for our state are numerous-
- Lower rental rates- landlords are willing to give better rates to businesses who will sign a multi-year lease. Over a ten year period, multi year leases could save the state of Georgia an estimated $66 million.
- Transparency- with multi-year leases we can compare ourselves to the private sector and the state will have the ability to compete in the changing real estate market.
- Tenant improvement allowances and less upfront costs- landlords are rarely willing to make improvements to property under a one-year lease. By signing multi-year leases landlords are assured of a steady tenant and therefore are more willing to make improvements to property.
- Increased pool of interested landlords- some landlords won’t even consider a one-year lease and therefore won’t rent to a state agency.
- Improved state budget projections- by enabling agencies to anticipate rental obligations, we can have more efficient management of state revenues.
As is the case in private business, there are certain risks with multi-year leases. For instance, critics point to the penalties involved in ending a lease early. While this is certainly a concern for any business- be it public or private- the benefits of multi-year leases far outweigh the risks.
SB37, which I also sponsored, is the enabling legislation associated with this bill and calls for certain safeguards such as a 20 year limit and a requirement that the SPC’s board approve every multi-year lease.
Perhaps the most important safeguard with SB37 is that multi-year leases within any given year can’t exceed a cap to be set by the Georgia Financing and Investment Commission. This will safeguard Georgia’s AAA bond rating by not allowing us to overextend ourselves in any given year.
A final point to be made in favor of multi-year leasing is the flexibility that it brings to the state. For instance, it could encourage the selling off of some older state-owned properties that would be expensive to renovate. It could also encourage some state agencies to move outside of Atlanta where office space rentals are less expensive.
The benefits of multi-year leasing for the state of Georgia far outweigh the risks involved.
Want to see government run more like a business?
A “yes” vote for Amendment #2 will do just that.