Businessmen dispute claims state would save by building instead of leasing offices

Kenny Guinn ran for office saying he'd run government more like a business.

And he says no business would rent office space on the scale that Nevada does.

But area businessmen who provide the state a large percentage of its leased space say leases make sense because they can do the job better and for less money than the state.

State government has more than 1.3 million square feet of leased space in the Nevada. It's big business, especially in Carson City where the state leases nearly half that total - 521,929 square feet of office, laboratories and other space - for various agencies.

Guinn said he plans to dramatically reduce that total and backed it up with plans for a $33 million state office building in next year's budget.

"The state should own, basically, its own buildings," he said. "The way we lease space doesn't make sense."

Director of Administration Perry Comeaux said the biggest savings would come from the fact that, in every leased office, the state is not only paying for the cost of the building and interest on its mortgage but the owner's profit margin.

He said the state is also paying taxes to itself, school districts and local government that it wouldn't otherwise have to pay because the private owner charges those taxes as part of his cost of doing business.

Comeaux said altogether the state spends nearly $16 million a year to rent office space - money which could be spent paying off bonds to build its own office space.

"There are a lot of efficiencies in having a department consolidated," he said. "Take a Department like Conservation and Natural Resources. They're scattered to hell and gone. There's nothing like being able to walk down the hall and just get something resolved, and there may be staffing efficiencies if you can get people together."

He also said it would be better for the public, in many cases, to have all the divisions in a department in one place.

"We'll never completely eliminate leased space," said Comeaux. "But the extent to which we are leasing space right now, in (Guinn's) opinion or frankly mine, is not good."

He said that's why the first building on the list is a new Carson City office.

"The first building we're proposing is to consolidate core internal service agencies," he said. "They're the ones that need to be close to the capitol complex."

Roger Shaheen, who has built office space for numerous state agencies in Carson City during the past 30 years, said he too thinks certain facilities should be state-built and owned. But others aren't cost-efficient for the state, he said.

"The state could probably serve itself best in building specialty facilities like the Supreme Court or the Legislature," he said.

"But the public would be best served letting private industry build general-purpose offices."

Shaheen's companies lease more than 44,000 square feet to the state, including office space for the Gaming Control Board and Department of Taxation on College Parkway. He also built and later sold major office complexes, including one occupied by Conservation and Natural Resources on East Nye Lane.

He said private developers like himself can build the same office complex cheaper and quicker, as well as operate and maintain it for less than the state. When state analysts examine the numbers, he said, they'll come to the same conclusion.

Tom Johnson, of Gold Dust Properties, which manages more than 100,000 square feet of office space leased to the state, agreed with Shaheen.

"The private sector can do some things better than the public sector, and I think building buildings is one of those things," Johnson said. "When you get to general purpose office space, we can build better, cheaper and operate it cheaper."

Shaheen said leases also offer other advantages, not the least of which is that the state can pick up and leave when the building gets outdated or the space no longer suits the agency's needs.

"If they own the building, they can't do that."

Shaheen said his company has served the state well by building exactly to meet the needs of agencies.

"They've come to us several times and said they need a whole new facility, so we designed and built it to their specifications because our rate is drastically less than what the state can build for."

Johnson said if the state really wants to own instead of lease, it should buy some of the buildings it now rents which were designed and built for those agencies. He said that way it gets the benefit of lower priced private construction and still owns the building.

Comeaux, however, said much of private business's advantage would disappear with a more businesslike approach by government. He said the state can bring its construction and operating costs into the range private developers enjoy, then deduct the taxes and owner-profit margin.

Comeaux said, state construction costs would drop more because it already owns much of the land it plans to build on and gets an interest rate for bonds lower than private industry pays for loans.

"I feel we can be very competitive," he said.

With nearly half the state's leased space in Carson City, capital businessmen collect more than $564,000 a month in rent money from the state.

Most of the money goes to a small number of major property owners who specialize in leasing office space to the state. Five business groups including two major Gold Dust clients and Shaheen's companies, account for more than half the total. In all, there are 32 businessmen and companies with state leases in Carson City.

The most expensive on the list are the three leases by Frost-Nevada Partner to Conservation and Natural Resources on Nye Lane, which costs the state $93,775 a month.

Shaheen said that doesn't mean only a few big developers would be hurt by Guinn's proposed policy. He said if the state vacates a major private building, the owners would lower rates - even if they surrendered their profit - just to keep it filled and cover the overhead. That, he said, would force everyone else to cut rates to keep from losing renters.

Outside Carson City, there are 65 leases in Las Vegas totaling 276,557 square feet and costing the state more than $330,000 a month.

There are another 42 leases in Reno totaling 206,804 square feet and costing the state $218,279 a month.

The remaining leases - for agencies such as DMV, Welfare, Family to Family, Wildlife and Employment Security - are in rural areas. Comeaux said it's doubtful many of those would ever be replaced with state buildings, although there might be a justification for a state office complex in Elko.

Guinn is expected to present his office building plan to the 2001 Legislature.