State Budget

Lawmakers Consider Governor’s Plan for $402 Million for Complex With New CDTFA Office


Lawmakers are considering a budget request from Governor Gavin Newsom to spend $402 million in general fund money in 2023-24 for a state office complex that will include a new headquarters for the California Department of Tax and Fee Administration.

All totaled, the complex is expected to cost more than $1 billion, according to an analysis prepared for a Senate Budget and Fiscal Review subcommittee. The subcommittee was scheduled to consider the request April 13, but canceled the hearing due to a security threat at the Capitol. The subcommittee could consider the proposal at upcoming hearings for which the agendas include an item for “open issues.”

The $1 billion office project is under way at the same time a group of lawmakers is seeking to abolish the elected State Board of Equalization and transfer most of its responsibilities to the CDTFA, ostensibly to save money on office space.

The $402 million in Newsom’s January budget proposal would pay a portion of expenditures for the design-build phase of the Richards Boulevard Office Complex project just outside of downtown Sacramento.

The project includes construction of a new office campus of approximately 1.25 million square feet, composed of four buildings ranging from seven to 11 stories, on land where the State Printing Plant once stood. The project is scheduled to be completed in April 2024, and bonds for the project are scheduled to be sold in the spring of 2024.

Along with the CDTFA, expected tenants are the Department of Healthcare Access and Information, the Commission on Teacher Credentialing, and various departments in the Business, Consumer Services, and Housing Agency.

In the 2019-20 budget, the Legislature and governor authorized total design-build funding in the amount of $1,014,598,000 through the Public Buildings Construction Fund (lease revenue bond financing). To finance such projects, the State Public Works Board typically provides interim financing for the construction or design-build phases of a project, then issues tax-exempt lease revenue bonds as permanent project financing.

“Federal tax code for the issuance of tax-exempt bonds requires, among other things, that the bonds must be issued within three years of initial project expenditures,” the Senate subcommittee’s analysis noted. “According to [the Department of General Services], due to the nearly four-year construction schedule initially established for this project, a portion of expenditures fall outside of this three-year window and therefore those project expenditures no longer qualify for tax-exempt financing.”

The Legislative Analyst’s Office noted that as a result of the projected state deficit, the governor’s 2023-24 budget proposes to switch financing for many capital outlay projects from cash to lease revenue bonds.

“The only projects that would use cash are three courthouses (Redding, El Centro, and Sacramento) and the Department of General Services’ Richards Boulevard project,” the analyst stated. “For these projects, a total of $491 million General Fund 2023-24 would be allocated to fund a portion of the cost. These projects would otherwise need to use taxable bonds to finance these costs because they exceed the three-year window required for tax-exempt bonds.”

The subcommittee staff recommended that the panel hold the issue open for the time being rather than vote to support or reject the spending. (CalTax: The budget subcommittees in both houses typically hold the vast majority of proposals open, and many of the proposals eventually find their way into the budget negotiated behind closed doors by legislative leaders and the governor.)