Legislative Analyst's Office

Analysis of the 2001-02 Budget Bill

Department of Motor Vehicles (2740)

The Department of Motor Vehicles (DMV) occupies 170 general offices throughout the state (91 of which are DMV-owned and 79 leased) that provide public services such as issuance of driver's licenses and vehicle registrations. It also occupies 39 other facilities—such as commercial and occupational driver's licensing facilities, warehouses, a telephone service center, and headquarters office buildings. Five of these are owned by the department and 34 are leased.

The 2001-02 Governor's Budget proposes $10.1 million for three major capital outlay projects, two to replace field offices in Stockton and San Ysidro; and one a continuation of asbestos abatement, seismic strengthening, and renovation of its headquarters building in Sacramento. Of this amount, $600,000 is proposed from the State Highway Account of the State Transportation Fund (STF), $5.5 million from the STF Motor Vehicle Account, and $4 million from the Motor Vehicle License Fee Account of the Transportation Tax Fund. The budget also proposes that the Legislature authorize the department to enter into a lease-with-purchase option to relocate the south Sacramento field office.

South Sacramento Replacement Office

We recommend the south Sacramento replacement office be procured by state capital outlay, not by a lease-with-purchase option agreement with a private developer. (Delete Provision 1, Item 2740-001-0044.)

The DMV currently leases a 7,836 gross square feet (gsf) office in a shopping center in south Sacramento where it provides driver's license and vehicle registration services. The owner of the shopping center has notified the department that he will not renew DMV's lease when it expires in September 2003, although he has indicated a willingness to extend the lease and work with the department to accommodate its move to a new location. The budget proposes to acquire a 14,226 gsf building with 120 parking spaces on 2.33 acres by entering into a lease-with-purchase option agreement with a developer.

Our concern with this proposal is not with the need for a new facility, but with the way the budget proposes to obtain that facility. The DMV relies on an analysis prepared by the Department of General Services (DGS) in concluding that it would be more cost effective to provide alternative space using a using a lease-with-purchase option agreement with a private developer rather than through the state constructing its own facility. The DGS analysis estimated the cost of using capital outlay construction to be $5.7 million as compared to $5 million if a lease-with-purchase option were used.

It is not clear to us, however, that DGS's analysis took into account all costs associated with a lease-with-purchase option. Specifically:

These costs that DGS did not include in its analysis could add over $900,000 to the cost of procurement by lease-with-purchase option. This would make the lease-with-purchase option about $200,000 more expensive than capital outlay. Rent paid before the purchase option is exercised would make the lease-with-purchase option even more expensive.

Also of concern is the lack of control the state would have over the quality of the building construction. If the state enters into a lease-with-purchase option agreement, it does so on the basis of a minimal definition of the building—usually floor plans, elevations, and outline specifications. It leaves to the developer many decisions about design, engineering, materials, and methods of construction. By comparison, if the building is procured by capital outlay, detailed working drawings and specifications are prepared by the state that fully define the configuration, features, materials, and quality of construction the state needs.

For these reasons, we believe procurement of this project by lease-with-purchase option would be more expensive and result in the state purchasing a building that may not meet long-term needs. Accordingly, we recommend denial of the requested authorization to procure the project by lease-with-purchase option. If the department submits a proposal for funding the initial phase for a capital outlay project, it would warrant legislative consideration. Since the department has funds for the proposed lease with purchase it would also be able to pay for a direct capital outlay project.

Stockton, Field Office Replacement

We recommend the Legislature delete $5.1 million for working drawings and construction because a site for the new office has not been identified or acquired and preliminary plans have not been completed. (Delete $5.1 million from Item 2740-301-0044 [3].)

The DMV Stockton field office is located adjacent to the former Stockton state hospital site, which is now controlled by a joint powers authority of the City of Stockton and California State University (CSU). The CSU Stanislaus operates an off-campus center on the site and the joint powers authority has begun to plan for redevelopment of the remainder of the site. The 2000-01 Budget Act approved funds for acquisition and preliminary plans for a project that would demolish the existing DMV building, acquire additional land from the former state hospital site, and construct a new 16,484 gsf building. Because the joint powers authority has not completed its planning process, no decision has been made about its willingness to provide the additional land required for this project. Thus, land has not been acquired and work has not started on preliminary plans. The city has also expressed concern about how DMV service would be maintained while the existing office is being demolished and a new building constructed. Because of these problems, we recommend the Legislature deleted funding for working drawings and construction.

San Ysidro, Replacement Facility

We recommend deletion of $4.7 million for working drawings and construction because a site has not been acquired and preliminary plans have not been started. (Delete $4.7 million from Item 2740-301-0044 [4].)

The 2000-01 Budget Act approved $2 million for acquisition and preliminary plans for a new 14,777 gsf office building to replace the existing 8,574 gsf leased San Ysidro office. The DGS reports that a site preferred by DMV may be contaminated and DGS is searching for, but has not found, a suitable alternative site. The DGS also reports preparation of preliminary plans has not started.

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