Update: Lease-Purchase of State Facilities

The Department is moving forward with all aspects of completing the lease-purchase financing pursuant to the provisions of the authorizing legislation set forth in Laws 2009, Third Special Session, Chapter 6, Section 32, and anticipates completing at least a first phase of the financing for at least $250 million by January of 2010.  If market conditions are more favorable to the State by doing so, the Department may seek to borrow the full $735.4 million at that time in order to better address the State’s cash and budgetary needs. 

Lease-purchase financing allows the State to leverage, or borrow against, the assets it owns while retaining the right to use those facilities.   Payment of the semi-annual lease payments will be made by the Department from State General Fund monies and selected State facilities will serve as collateral or security backing the lease payments.  This basic financing approach has been used before by both the State and by other governmental entities in Arizona, as well as across the country.

To raise the entire $735.4 million required as part of the State’s fiscal year 2010 budget, the Department will enter into a Master Lease-Purchase Agreement that includes all of the selected State assets that will provide collateral for the financing.  In order to provide market-acceptable collateral for the financing, the assets to be included will generally consist of facilities on State-owned land that are free and clear of any liens, and that are of a more essential nature to the State’s ongoing mission. 

The assets will be valued at their replacement value, as determined by the Director of the Department, in order to provide collateral value at least equal to the $735.4 million of funds being borrowed by the State.  The Department is completing its legal and property review in finalizing a list of assets that meet those requirements.  Given the size of the required financing, the preliminary list includes many State buildings with large dollar values such as certain State correctional facilities, Capitol Mall facilities and other large administrative facilities. Click here to review the preliminary list.  Click here to review the enabling legislation.

More information will be posted at our website as it becomes available.