HOUSE BILL REPORT

HB 2310

BYRepresentatives H. Sommers, Schoon and Rasmussen; by request of State Treasurer

Modifying the state's ability to lease and lease back land.

House Committe on Capital Facilities & Financing

Majority Report:  Do pass.  (10)

      Signed by Representatives H. Sommers, Chair; Rasmussen, Vice Chair; Schoon, Ranking Republican Member; Beck, Betrozoff, Bowman, Fraser, Jacobsen, Rector and Wang.

Minority Report:  Do not pass.  (1)

      Signed by Representative Heavey.

House Staff:Bill Robinson (786-7140)

AS PASSED HOUSE FEBRUARY 9, 1990

BACKGROUND:

In 1989, the legislature authorized the state to enter into lease/purchase agreements for equipment and real estate.  Such agreements for installment payments on real estate, however, require prior approval by the legislature.

During the implementation of the new law several technical problems surfaced.  Two require statutory changes.  First, Washington law does not exempt public property acquired by lease/purchase or installment contacts from taxation.  Similar property acquired by outright purchase is, however, exempt from state property tax.  Second, the state can not lease property acquired under a lease/purchase agreement that resides on state owned land.  For example, if the state constructed a building on state land, the state could not lease the building to an outside party until installment payments were completed.  The lease/purchase program currently finances such building contracts with certificates of participation, in which private investors provide initial capital to finance the building.

The state treasurer's office recommends that the current law be amended to enable the state to lease financed buildings to a third party.  This would reduce the risk to investors who provide initial capital to finance the building.

SUMMARY:

The Department of General Administration is authorized to negotiate leases on public lands if the property on the land is to be acquired by a financing contract.  The lessor is authorized to hold a security interest in property acquired by a financing contract.  All property owned by the state, including property under a financing contract is exempt from taxation.

Fiscal Note:      Available.

House Committee ‑ Testified For:    Tim Kerr, State Treasurer's Office.

House Committee - Testified Against:      No one.

House Committee - Testimony For:    The lease provision and tax exempt treatment for property acquired on an installment basis will alleviate any concerns from the investing public on possible impairment or qualification of security for state debt.  The Department of Revenue has rules that state property acquired by these type of contracts are exempt from state tax.  The bill will make the statutes consistent with the ruling.

House Committee - Testimony Against:      None.