Arizona Planning $735 Milion Sale Leaseback of State Buildings

New York Times - October 20, 2009

A tentative plan to implement a budget-balancing maneuver by raising $735 million from investors calls for allowing individuals and institutions to buy securities that would be backed by collateral consisting of a bulk package of prisons and other state buildings, officials said Monday.

The Department of Administration said it intends to implement the sale-leaseback strategy by assembling all the properties in a package that would be "nominally sold" to investors as part of securities sales in January.

The securities -- certificates of participation -- would entitle investors to proportional shares of annual lease payments by the state for up to 20 years.

Under the budget legislation signed into law by Gov. Brewer on Sept. 4, ownership of the properties would revert to the state at the end of the lease.

The financing arrangement is a key element of a range of strategies which Brewer and legislators used to close a projected $3 billion shortfall. However, the state still faces a projected $1.5 billion midyear gap because Brewer vetoed part of the budget and because of still-slumping revenue and a deficit carried forward from the last fiscal year.

Though state officials have tentatively settled on an approach to use to implement the budget strategy through the sale of certificates of participation, they also are open to any suggested alternatives, said department Comptroller Clark Partridge said. "We're looking for the best deal for Arizona."

The properties included on a tentative list for use in the budget plan range from a park visitor center to the House and Senate buildings and various prisons.

The nature of the assets -- they generally are properties the state could not or would not give up -- would provide some peace of mind to investors that the state intends to stick with the deal, department spokesman Alan Ecker.

Ecker said the state has received "hundreds of phone calls" from real estate brokers and others concerning the investment opportunity.

He declined to release a list of the callers, saying it was being treated as a confidential procurement matter. Sphere: Related Content