Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill

Department of General Services (1760)

The budget includes requests totaling $219.3 million of bond funds for the Department of General Services (DGS) capital outlay program. This amount includes $3 million in general obligation bonds for management, design, and construction of a previously funded seismic retrofit project to improve the earthquake safety of state buildings, and $216.3 million of lease-revenue bonds to fund a previously approved state office building and to renovate the central plant for state buildings in downtown Sacramento.

Master Plan for Central Plant Is Not Yet Complete

We withhold recommendation pending receipt and review of the central plant master plan. At the time of this analysis, the master plan was not yet complete. Given the nature of this plan, we believe it is a critical component in analyzing how the central plant project will address the long-term needs of the state.

The Governor's budget requests $159.7 million, from lease-revenue bonds, to renovate and expand the District Heating and Cooling System (central plant). Proposed spending would accommodate additional equipment and construct an 8 million gallon underground Thermal Energy Storage tank, new cooling towers, and an underground piping distribution system.

The central plant provides heating and cooling through the distribution of chilled water, steam, and control air to 23 state-owned buildings in downtown Sacramento—including the Capitol and Legislative Office Building. According to DGS, these buildings represent 5.5 million square feet of office space that accommodate 20,000 employees. The current system consists of a central plant facility, containing chiller and boilers and associated equipment, and a series of underground tunnels containing chilled water and steam distribution piping which connect the central plant to the 23 buildings served. The system also includes a well, and discharge system for the heated water, which are located adjacent to the Sacramento River and connected to the central plant with buried pipes.

The current system was designed and constructed in 1968 and has had some minor expansions and modifications since then. While mostly original, and for the most part in good condition, the central plant is in need of updating for increased cooling capacity, compliance with environmental standards, and new technology.

Increased Cooling Capacity. The budget proposal states that the need for increased cooling capacity comes from the addition of computers, servers, copiers, printers, fax machines, and other devices that produce heat in the buildings. DGS points out that these devices did not exist when the central plant was designed and built. Also, because of the use of modular furniture, more people are capable of working in the buildings, which produces more heat that needs to be removed. Finally, over the last 30 years, new buildings have been added to the central plant system. According to DGS, all of these things have added to the central plant's cooling load. In addition, where there was once designed equipment redundancy in case a boiler or chiller failed, there is now none due to the increased demands on the equipment.

Compliance With Environmental Standards. In addition to the need for additional cooling capacity, DGS notes that the central plant has been in violation of water temperature discharge regulations which specify that water discharged into the Sacramento River shall not exceed 86 degrees, nor exceed the river water temperature by 20 degrees. On March 11, 2002, the Central Valley Regional Water Quality Control Board (regional board) issued a cease and desist order to DGS for thermally polluting the Sacramento River by discharging heated water, the temperature of which exceeded the discharge regulations. To comply with the order, the state must provide the regional board a schedule and plan to remedy the situation by March 1, 2003; provide twice yearly progress reports; and stop discharging heated water by March 1, 2006.

Central Plant Master Plan. According to DGS, it had already begun working on the development of a central plant master plan prior to the regional board issuing the cease and desist order. DGS indicates that the master plan will provide an operating plan for the central plant for the next 30 years. The plan will allow for future growth and improvements without major operation disruptions, and it will provide guidelines on how to optimally connect new buildings to the central plant loop. It will also restore equipment redundancy and provide operational flexibility to help address high natural gas or electrical prices. Finally, it will provide a solution to the regional board's cease and desist order.

At the time of this analysis, the central plant master plan was not yet complete. Given the nature of the plan, we believe it is a critical component in analyzing how this proposal best addresses the long term needs of the state. Consequently, we withhold recommendation on this proposal pending our receipt and review of the central plant master plan.

As discussed in the "Crosscutting Issues" section of this chapter, if the Legislature approves this project, we recommend the addition of budget bill language that would assure the Legislature's oversight role when fully funding all phases of a lease-revenue bond project.

Return to Capital Outlay Table of Contents, 2003-04 Budget Analysis