Scott Walker To Auction off Wisconsin's Public Goods

Chris · Jun 1, 2013

Proposal gives Scott Walker administration more power to sell state property
State power plants, UW buildings could be sold to help cut debt

By Patrick Marley and Karen Herzog of the Journal Sentinel May 19, 2013
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Madison - Gov. Scott Walker's administration would gain broad authority to sell state property - including prisons, highways, heating plants and university dormitories - under a plan legislators will take up Tuesday.

Proceeds would be used to chip away at the state's $8 billion debt, but the state entities that formerly owned the properties might not see any benefit from the sales. So, a dorm built with student fees could potentially be sold to pay down the debt for a highway expansion, or vice versa.

Critics say the plan that's part of the GOP governor's budget proposal could saddle the state with higher day-to-day costs - such as buying power and steam to heat prisons and dorms - after it sells the properties.

Under the governor's plan, the state also could negotiate sales with individual buyers without going through a public bidding process. Any sales would have to go through a "competitive and transparent process," though that process is not defined and includes no explanation of how negotiations with a single buyer could be competitive.

The plan has generated fierce opposition from supporters of the University of Wisconsin System, who say allowing the sale of UW buildings without the approval of the Board of Regents could be detrimental , especially if the buildings were paid for with the help of student fees or private donations. Currently, the regents have a say in the management of all UW buildings.

"I think it's foolish, mindless and will have a very chilling effect on fundraising," said Milwaukee businessman Sheldon Lubar, who donated millions of dollars to help build academic buildings at UW-Madison and UW-Milwaukee, and served on the UW System Board of Regents from 1991 to 1998.

Lubar said it never occurred to him that campus buildings he supported financially could ever be sold to a third party.

"I really don't think (Walker) thought this through and understands the negative impact this would have on the university," Lubar said.

Student leaders worry that student unions, such as the landmark Memorial Union at UW-Madison, could be sold and no longer controlled by the university. Student unions, built with student fees, are central to student life, as are residence halls that also potentially could be sold under the governor's proposal, said Matt Guidry, communications director for United Council of UW Students.

"Legislators have told us that selling these buildings isn't their intent," Guidry said. "We believe that's their intent today, but the next person down the road may feel differently."

Darling surprised

Sen. Alberta Darling (R-River Hills), co-chairwoman of the budget-writing Joint Finance Committee, said she was surprised the proposal would allow the sale of highways and prisons and believed legislators would change it to provide more legislative oversight.

"I'm very reluctant to give up any authority that the Legislature currently has," Darling said.

The Republican-controlled committee is to take up the plan Tuesday. Whatever it does will be incorporated into the state budget that is scheduled to go before the Legislature next month. Walker will then have a chance to approve it, reject it or rewrite it using his veto powers.

"There'll probably be a lot of healthy debate and be some kind of compromise," Darling said of Walker's proposal.

Rep. Jon Richards (D-Milwaukee), a member of the committee, said he opposed the plan.

"I don't think we should be rushing to have a fire sale on state property with no bid-contracts," Richards said. "That is not good long-term stewardship of state property."

Similar proposals have been debated before but failed to be signed into law. Walker pushed the sale of heating plants in 2011, but Republicans in the Legislature declined to go along with it.

Under Walker's new plan, the state Building Commission, which consists of the governor, three state senators, three state representatives and a citizen member, would have wide latitude to sell state properties. The proceeds would be used first to pay off any remaining debt on the properties that were sold and costs affiliated with the sales. Any leftover money would be used to pay down other debt.

The administration does not have current plans to sell highways, prisons, university dormitories or other properties that provide public services. Nonetheless, Walker and his successors would be able to pursue such sales if the Legislature granted the Building Commission the powers Walker is seeking.

No inventory yet

Stephanie Marquis, a spokeswoman for the Department of Administration, said the governor sought broad language because the administration has not yet compiled an inventory of all state property. Walker did not want to inadvertently exclude some types of property that officials may determine would be beneficial to sell, she said.

The focus is on shedding properties such as land that was purchased for highway expansions that ultimately wasn't needed, Marquis said in a statement.

"All sales will be logical and practical transitions," her statement said.

Sen. Rob Cowles (R-Allouez) said the Joint Finance Committee should remove the proposal from the budget and deal with it as separate legislation. He said there was no way the state should sell assets such as prisons and highways, and their inclusion in the governor's budget plan showed why it needs more scrutiny.

"That's why these things need to have individual bills, where public hearings will point out the warts," Cowles said.

UW properties: The university system wouldn't necessarily enjoy any of the benefits of selling its property, under Walker's plan. The administration could sell university buildings and use the money to pay debt belonging to other state agencies. If a campus faced higher costs by having to lease back the property, it wouldn't be able to use any of the money made from the sale of its property.

Athletic revenue and gifts pay for new sports facilities on campuses. Student fees build student unions, food service facilities, residence halls, recreation facilities and student health centers.

Utilities, academic buildings and administrative buildings are primarily taxpayer-financed. But academic buildings often are built with the help of private donations, which may or may not involve naming rights.

All of those buildings, plus Private Research parks on campus land, agricultural research stations and campus parking facilities, would be up for grabs under the governor's proposal.

"We really don't know the end impact of this," UW System spokesman David Giroux said. "If a residence hall is sold or leased to a third party, we don't know how that would affect students who live there, the rates they pay, and programming that occurs there."

The UW System's physical footprint includes 13 four-year campuses with about 1,900 buildings around the state, spanning 60 million square feet, with a replacement value of $11.5 billion.

Real estate for the two-year campuses is owned by the counties in which they are located.

The transactions could happen without the approval of the Board of Regents. Since the UW System was created through a merger in 1971, the Board of Regents has had explicit authority to hold, purchase, sell or lease any property.

"I don't think there have been any problems or concerns about our management of these buildings that would make this change necessary," said Regents President Brent Smith, adding that the governor's proposal to exclude the regents from the process was unexpected.

"We have tried, with mixed success, to say local campuses should have more control over things on their campuses," Smith said. "This appears to be a big step in the other direction, and we would strongly oppose it."

Heating plants: One of the most hotly debated provisions would allow the Building Commission to sell the state's heating, cooling and power plants. The state owns 33 such facilities, most of which provide steam and chilled water to UW campuses, prisons, health institutions and veterans homes. Together, those utilities have $312.8 million in debt, but their market value is unknown, according to the fiscal bureau.

State officials have said selling the plants may make sense for taxpayers given the need to invest in the power plants to address federal environmental standards and a lawsuit filed against the state by the Sierra Club. No one has conducted a cost-benefit analysis of the matter.

Offers for any of the plants would likely be discounted to pay for costly environmental upgrades, according to the fiscal bureau. If the plants were sold, the bonds the state issued for facility costs would no longer be tax-exempt, meaning the state could face a hefty bill to the federal government. The state may be able to structure the deals to minimize such taxes, but doing so would incur extensive legal fees, according to the fiscal bureau.

Further, the state would likely enter into 20- or 30-year contracts with the utilities that bought its facilities. Such sales would reduce the state's debt level on its balance sheet, but the state would still bear those costs, as well as the cost of any upgrades, through the rates the utilities would charge, according to the fiscal bureau.

The state's plants are mostly small and in need of work, but some are new and would be attractive to buyers, according to the fiscal bureau. For instance, Madison Gas & Electric has indicated it would like to buy out the state's portion of a UW-Madison plant that the state and the utility co-own.

The state could sell off those newer, cleaner plants but be left with older, smaller facilities. That would create challenges because with a smaller group of plants, the state would not be able to receive as great a discount on coal and natural gas, the fiscal bureau wrote.

If the Department of Administration moves quickly to ask for proposals from utilities seeking to buy the plants, a purchase could be completed in the first half of next year, Allen Leverett, the We Energies executive in charge of the utility's power plants, said during an investor conference call.

The Milwaukee utility has made no secret of its intentito consider a purchase of the power plants.

Journal Sentinel reporters Thomas Content in Milwaukee and Jason Stein in Madison contributed to this report.
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Wonderful.

Manufacture a budget crisis to sell public assets to your wealthy benefactors, it's the Republican way!

evenflow · Jun 1, 2013

They've got this backwards. First, you condemn private property, then eminent domain it at a bargain rate, then you sell it to private developers.

Chris · Jun 1, 2013

evenflow said: ↑

They've got this backwards. First, you condemn private property, then eminent domain it at a bargain rate, then you sell it to private developers.

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Yeah, but you can't lease it back to the state that way.

Dinner · Jun 1, 2013

This really doesn't make sense. They'll sell them off at a cut rate price then buy back the services (of the steam plant or what not) at a higher day to day cost. This is clearly bad economics and just designed to be a kick back to cronies.

Volpone · Jun 2, 2013

Re: Scott Walker To Auction off Wisconsin's Public Goods
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Scott Walker To Auction off Wisconsin's Public Goods

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Chris Cosmic Horror

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Volpone Zombie Hunter

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