Taxpayers Shouldn’t Buy Agencies’ Big Spending : Above-Appraisal Building Deals Hard to Justify
One of life’s biggest decisions is whether to keep on renting a home or to buy one, and that’s true for government agencies as well as for private individuals. It’s important to figure out such costs as taxes, insurance and how big a down payment to make.
Major importance attaches to the appraisal, the computation of how much a building is worth when compared to similar structures in the neighborhood. Banks use the appraisal to decide how much of a mortgage to grant; no one wants to pay too much.
But twice recently in Orange County, public or quasi-public agencies, financed by taxpayer money or bonds or user fees, have paid well over the value set by an appraisal. One instance was the purchase of an office building for the Transportation Corridor Agencies, which is building three toll roads; the other involved a building to be Dana Point’s City Hall.
The disparity in appraised value and purchase price for the new administrative office building of the Transportation Corridor Agencies is large. The agency paid $4.8 million for a building assessed at $3 million.
The tollway agencies did not seek an independent outside appraisal of the property, and should have. Relying on the appraisal of a broker that stands to benefit from the sale can raise the perception of a conflict of interest, even if such a conflict does not exist. The agencies’ directors, who include elected officials, said the property is an investment that can be sold when the agencies go out of business in 30 years. They also contended that property in the Irvine Spectrum area has become expensive.
But big spending unfortunately is nothing new to the quasi-public Transportation Corridor Agencies. Last year the agencies’ chief executive officer, who held a compensation package worth over $175,000, received a bonus of $7,000. His two vice presidents, making more than$125,000 a year, received bonuses of more than $6,000. This year the governing boards of the toll road agencies decided against bonuses until an evaluation process was established.
A spokesman for the agencies acknowledged that the bonuses sparked heavy criticism last year. The objections were warranted. Bonuses can be justified only in the event of extraordinary performance.
Dana Point, a new city, presents another case where getting the best price for the public is important. It incorporated in 1989 and quickly began looking for a building to serve as City Hall. This year the City Council bought a two-story building for $4.05 million, more than $1 million above the building’s appraised value. Few private citizens or corporations would pay more than 33% above the appraised value in a still-slow real estate market.
The three council members at the May meeting voted unanimously for the purchase. They have defended the sale as the best deal available for the city.
The city already used the building as its headquarters and was facing a more than 20% increase in the $32,000 monthly rent. But the difference between appraisal and sale price was large enough to suggest that the City Council needs tougher negotiators the next time it buys something.
The Orange County district attorney’s office examined the Dana Point purchase after a citizen complained. Prosecutors found nothing to warrant a criminal case. But that does not mean the sale price was justified.
At a time when so many residents are concerned about their own finances and rightfully remain angered by the county’s bankruptcy, seeing public agencies pay millions of dollars above a building’s appraised value can deepen resentment of government. It can solidify the belief that too many public officials are wasteful.
