05/07/2004 08:44 AM Senate FIN

                                                                                                                                
     CS FOR HOUSE BILL NO. 545(L&C)                                                                                             
     "An   Act  relating   to  time  extensions   under  the   State                                                            
     Procurement  Code for real property  leases; and providing  for                                                            
     an effective date."                                                                                                        
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  stated that this bill, CS HB 545(L&C),  Version 23-                                                            
GH2150\H, is  sponsored by the House  Rules Committee by  Request of                                                            
the Governor,  and would allow a State  agency to negotiate  a lease                                                            
agreement  for ten  years  provided  that there  be  a minimum  cost                                                            
savings of ten percent below the market rental value.                                                                           
                                                                                                                                
VERN   JONES,    Chief    Procurement   Officer,    Department    of                                                            
Administration,  stated  that  the current  State  procurement  code                                                            
allows the State to negotiate  extensions for real estate leases for                                                            
up to ten years in exchange  for rent reductions. He noted that this                                                            
bill  "would  increase  the  State's  ability   to  negotiate  lease                                                            
extensions  by  changing  the  requiring  threshold  from a  ten  to                                                            
fifteen percent  reduction  off of the existing  lease rate,  as the                                                            
current law  requires, to a ten percent  reduction from the  current                                                            
market rate." He stated  that the current statutory regulations have                                                            
negatively  impacted  the Department's  ability  to negotiate  lease                                                            
extensions with landlords,  as, he attested, the State's real estate                                                            
market  combined  with the  way  the State's  lease  agreements  are                                                            
structured,  often makes the 15 percent  reduction from the  current                                                            
lease rates "unobtainable."                                                                                                     
                                                                                                                                
Mr. Jones stated  "that tying the lease rate to a  percentage of the                                                            
current market rate would  be a more reasonable approach" that would                                                            
allow  the State "to  negotiate  reduced rates  more frequently  and                                                            
avoid  the lengthy  and  expensive re-procurement   process, not  to                                                            
mention  the cost  and  disruption"  of moving  States  offices  and                                                            
employees.                                                                                                                      
                                                                                                                                
Mr. Jones detailed the  current lease process, including improvement                                                            
options,  and concluded  that  this bill  would allow  the State  to                                                            
reduce its overall leasing expenses.                                                                                            
                                                                                                                                
Co-Chair Wilken asked whether  this legislation is a new approach or                                                            
is modeled after that of other states.                                                                                          
                                                                                                                                
Mr. Jones responded  that this legislation  "is just making  a small                                                            
adjustment to a tool" that  is already in place. He noted that other                                                            
states often exempt  real estate leases from their  procurement code                                                            
similar to  a business or brokerage  model. He estimated  that while                                                            
approximately  half of the states  have similar lease procedures  to                                                            
the State, the proposed provision is unique.                                                                                    
                                                                                                                                
Senator  Dyson  moved  to  report  the  bill   from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
                                                                                                                                
There being no objection, CS HB 545(L&C) was REPORTED from                                                                      
Committee with zero fiscal note #1, dated February 25, 2004 from                                                                
the Department of Administration.                                                                                               
                                                                                                                                
RECESS TO THE CALL OF THE CHAIR 10:05 AM / 5:11 PM