STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
A PERFORMANCE AUDIT
of the
DEPARTMENT OF ADMINISTRATION - FINANCE DIVISION
FACl LIT1 ES PLAN Nl NG & CONSTRUCTION SECTION
JANUARY 1982
A REPORT TO THE
ARIZONA STATE LEGISLATURE
REPORT 82- 1
DOUGLAS R. NORTON. CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
January 26, 1982
Members of the Arizona Legislature
The Honorable Bruce Babbitt, Governor
M r . Robert B. Tanguy, Director
Department of Administration
Transmitted herewith is a report of the Auditor General, A Performance
Audit of the Department of Administration, Finance Division, F a c i l i t i e s
Planning and Construction Section. This report is i n response to a
January 30, 1980, resolution of the Joint Legislative Oversight
Committee. The performance audit was conducted as a part of the Sunset
review s e t forth i n A. R. S. $ 541- 2751 through 41- 2379.
The blue pages present a summary of the report; a response from the
Director of the Department of Administration and the Assistant Director
for Finance is found on the yellow pages preceding the appendices.
My s t a f f and I w i l l be pleased to discuss or c l a r i f y items i n the report.
Respectfully submitted,
Staff: Gerald A. Silva
William Thomson
Dawn R. Sinclair
Gloria G. Glover
Arthur Heikkila
Richard D. Stephenson
Enclosure
DOU~ RH. SNo rton
Auditor General
1 11 WEST MONROE e SUITE 600 PHOENIX, ARIZONA 85003 ( 602) 255- 4385
OFFICE OF THE AUDITOR GENERAL
A PERFORMANCE AUDIT OF THE
DETARTMENT OF ADMINISTRATION - FINANCE DIVISION
F A C I L I T I E S PLANNING AND CONSTRUCTION SECTION
A REPORT TO THE
ARIZONA STATE LEGISLATURE
REPORT 82- 1
TABLE OF CONTENTS
SUMMARY
INTRODUCTION AND BACKGROUND
SUNSET FACTORS
FINDING I
Statutory changes a r e needed to provide FP& C
with the a b i l i t y t o review S t a t e leases of r e a l property
effectively.
CONCLUSION
RECOMMENDATIONS
FINDING I1
FP& C1s inspection of leased f a c i l i t i e s should
be discontinued.
CONCLUSION
RECOMMENDATIONS
OTHER PERTINENT INFORMATION
AREAS FOR FURTHER INQUIRY
WRITTEN RESPONSE TO THE AUDITOR GENERAL REPORT
APPENDICES
APPENDIX I - Legislative Council Memorandum 0- 81- 94,
December 29, 1981
APPENDIX I1 - Legislative Council Memorandum 0- 81- 93,
December 23, 1981
APPENDIX I11 - Legislative Council Memorandum 0- 81- 19,
September 29, 1981
- Page
i
1
5
11
APPENDIX I V - Legislative Council Memorandum 0- 81- 54,
June 11, 1981
LIST OF TABLES
TABLE 1
Summary of FP& C1s a c t i v i t i e s during f i s c a l years
1975- 75 through 1979- 80.
TABLE 2
Summary of FP& C1s full- time equivalent employees' ( FTE)
actual expenditures f o r f i s c a l years 1977- 78 through 1980- 81
and projected expenditures f o r f i s c a l year 1981- 82.
TABLE 3
Comparison of f i s c a l year 1979- 80 leases by S t a t e agencies
by cost per square foot of space.
TABLE 4
Summary of actual and estimated sources and disposition
of Capital Outlay S t a b i l i z a t i o n Fund from f i s c a l year
1976- 77 through 1981- 82.
- Page
2
SUMMARY
The Office of the Auditor General has conducted a performance audit of the
Department of Administration, Finance Division ( DoA-~ inance,) F a c i l i t i e s
Planning and Construction Section i n response to a January 30, 1980,
resolution of the Joint Legislative Oversight Committee. This performance
audit was conducted as a part of the Sunset review s e t f o r t h i n Arizona
Revised Statutes ( A. R. s. ) $ 541- 2357 through 41- 2379.
The F a c i l i t i e s Planning and Construction Section ( FPBC) was created by the
Legislature i n 1967 and incorporated i n t o the Department of
Administration, Division of Finance, i n 1973.
Under the provisions of A. R. S. $ 41- 726, FP& C is responsible f o r
maintaining plans prepared by State agencies, inspecting existing State
buildings annually and reviewing leases of r e a l property. Additionally,
FP& C is required to supervise the planning and construction of new State
f a c i l i t i e s .
Arizona law requires FP& C t o review proposed projects, including leases of
real property, and submit a report to the Legislature. However, FP& C
l a c k s a u t h o r i t y t o review a l l leases executed by S t a t e agencies or to
approve or disapprove such leases. A s a r e s u l t , 1) FP& C1s review of
proposed leases is e s s e n t i a l l y meaningless, 2) information used i n
assessing the need f o r new S t a t e const- I- uction is inadequate, and 3) State
lease expenditures may be excessive and unnecessary. Statutory changes
are needed to c l a r i f y FPBC's r e s p o n s i b i l i t i e s and provide FP& C with
authority t o review proposed leases effectively. ( page 11)
FP& C conducts annual s i t e inspections of property leased by the S t a t e to
i d e n t i f y needs f o r construction of additional S t a t e buildings. These
inspections a r e an i n e f f i c i e n t and i n e f f e c t i v e use of FP& C s t a f f i n t h a t
they do not 1) protect the i n t e r e s t s of the S t a t e by i d e n t i f y i n g h e a l t h
and safety hazards i n a l l leased f a c i l i t i e s , 2) ensure t h a t deficiencies
w i l l be corrected when i d e n t i f i e d , o r 3) provide s u f f i c i e n t inputs i n t o
t h e S t a t e construction needs assessment process. Additionally, FP& C
inspections appear t o duplicate, at l e a s t i n p a r t , inspections performed
by other agencies. FP& C should discontinue inspections of leased
f a c i l i t i e s and r e a l l o c a t e its s t a f f t o performing inspections o f new
building construction. Additionally, s t a t u t o r y changes a r e needed to
1) s p e c i f i c a l l y exclude leased f a c i l i t i e s from inspection, and 2) require
a l l agencies t o submit annually t o FP& C information used t o assess the
needs f o r new construction. ( page 23)
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance audit of the
Department of Administration, Finance Division ( DOA-~ inance), F a c i l i t i e s
Planning and Construction section i n response t o a January 30, 1980,
resolution of the Joint Legislative Oversight Committee. This performance
audit was conducted as a part of the Sunset review s e t f o r t h i n Arizona
Revised S t a t u t e s ( A . R. S. ) $ $ 41- 2357 through 41- 2379
The F a c i l i t i e s Planning and Construction Section ( FP& C) was created by the
Legislature i n 1967 and incorporated i n t o the Department of
Administration, Division of Finance, i n 1973.
Under the provisions of A. R. S. $ 41- 726, FP& C is required t o maintain plans
prepared by S t a t e agencies, inspect annually existing S t a t e buildings and
review leases of r e a l property. Additionally, FP& C is mandated t o
supervise the planning and construction of new S t a t e f a c i l i t i e s through
1. Review of proposed projects and improvements;
2. Review of a r c h i t e c t u r a l , engineering and construction c o n t r a c t s ;
3. Approval of plans and s p e c i f i c a t i o n s and a l l changes thereto;
4. Inspection during the course of construction; and
5. Review and approval of progress payments.
FP& C reports annually t o the Legislature on 1) the condition and
u t i l i z a t i o n of existing S t a t e buildings, and 2) proposed p r o j e c t s ,
including leases.
A summary of FP& C1s a c t i v i t i e s during f i s c a l years 1975- 76 through 1979- 80
are shown i n Table 1.
TABLE 1
SUMMARY OF FP& CIS ACTIVITIES DURING FISCAL YEARS
1975- 76 THROUGH 1979- 80
Inspections performed
Existing building ( ~ o t e1 )
Leased f a c i l i t i e s
New construction
Lease agreements reviewed
~ r c h i t etcu ral/ engineering
contracts reviewed
Construction contracts reviewed
Plans and s p e c i f i c a t i o n s reviewed
Fiscal Year
Note 1: Includes a l l State- owned s t r u c t u r e s such a s radio
antennas, fences and storage sheds. I n FY 1979- 80, FP& C
discontinued inspections of s t r u c t u r e s with values l e s s
than $ 1000.
Note 2: Excludes inspections i n c a p i t o l Complex.
Source: FP& C Annual Reports, 1975- 76 through 1979- 80.
A s of December 31, 1981, FP& C was authorized nine full- time
employees. One position was vacant a s of t h a t date. Table 2
contains a summary of FP& C1s full- time equivalent employees' ( FTE)
actual expenditures f o r f i s c a l years 1977- 78 through 1980- 81 and
projected expenditures f o r f i s c a l year 1981- 82.
TABLE 2
SUMMARY OF FP& C1s FULL- TIME EQUIVALENT EMPLOYEES' ( FTE)
ACTUAL EXPENDITURES FOR FISCAL YEARS
1977- 78 THROUGH 1980- 81 AND PROJECTED EXPENDITURES FOR FISCAL YEAR 1981- 82
- FTE
Personal services
Fiscal Years
1977- 78 1978- 79 1979- 80 1980- 81" 1981- 82
( projected)
Employee- related expenditures 21,900 29,200 31,600 36,000 45,900
Professional & outside services 3,200 700 900 800 1,000
Travel - i n S t a t e 12,300 16,900 14,500 24,500 25,800
Other operating expenses 14,100 14,900 15,400 16,400 17,400
Equipment 600 800 4,100
Total '-$ 178-. 700 -$ 2' 35.800 . E- mTm - m
Source: A s s i s t a n t D i r e c t o r , DOA- Finance.
* Through June 30, 1981.
The Auditor General expresses g r a t i t u d e t o the employees of the Department
of ~ d m i n i s t r a t i o n , Finance Division, F a c i l i t i e s Planning and Construction
Section f o r t h e i r cooperation and assistance during the course of the
audit.
SUNSET FACTORS
Nine f a c t o r s were reviewed t o aid i n the process of determining whether
the Department of Administration, Finance Division, F a c i l i t i e s Planning
and Construction Section should be continued or terminated i n accordance
with Arizona Revised S t a t u t e s ( A. R. s. ) $ $ 41- 2351 through 41- 2379.
SUNSET FACTOR: OBJECTIVE AND
PURPOSE I N ESTABLISHING THE SECTION
There is no e x p l i c i t statement of l e g i s l a t i v e i n t e n t i n the s t a t u t e s
establishing the F a c i l i t i e s Planning and Construction Section ( FP& c).
A. R. S. $ 41- 726 provides t h a t FP& C
1. Inspect S t a t e buildings annually and report t o the Legislature on
the condition, maintenance and u t i l i z a t i o n of such buildings;
2. Review proposed p r o j e c t s , f a c i l i t i e s improvements and leases and
submit a report thereon t o the Legislature;
3. Review a r c h i t e c t u r a l , engineering and construction contracts
before t h e i r submission t o the Department of Law;
4. Approve plans and s p e c i f i c a t i o n s and changes thereof f o r p r o j e c t s
and improvements f o r which funds a r e appropriated by the
Legislature;
5. Review and approve progress payments on major projects and
improvements;
6. Inspect projects and improvements during the course of
construction t o ensure compliance with plans and specifications;
and
7. Maintain and update a five- year plan of f a c i l i t y improvements and
construction projects which w i l l be required by S t a t e agencies.
In addition, statements made by one member of the Legislature indicate
t h a t t h e purpose i n establishing FP& C was t o protect the i n t e r e s t s of the
S t a t e during the planning, constructing and leasing of f a c i l i t i e s which
w i l l be occupied by S t a t e employees.
SUNSET FACTOR: THE DEGREE TO WHICH
THE SECTION HAS BEEN ABLE TO RESPOND
TO THE NEEDS OF THE PUBLIC AND THE
EFFICIENCY WITH WHICH IT HAS OPERATED
FP& C attempts t o respond t o the needs of the public by providing
information f o r c a p i t a l investment planning decisions t o agencies,
DOA- Finance, the Executive Budget Office and the Legislature.
Planning information is generated through t h e l e a s e review and inspection
functions. Our review revealed t h a t t h i s information is incomplete
because not a l l leased f a c i l i t i e s a r e subject t o review and inspection.
( pages 13 and 24)
FP& C performs various review and inspection functions t o determine t h a t
f a c i l i t i e s owned and leased by the S t a t e a r e adequate, safe and
economical. However, there is inadequate control over lease expenditures
because 1) not a l l leases a r e subject to review, 2) many leases are
reviewed a f t e r execution, and 3) FP& C does not review f o r reasonableness
of terms or economy. ( page 11) Additionally, inspections do not provide
f o r t h e elimination of deficiencies i n leased f a c i l i t i e s . ( page 26)
Opportunities e x i s t to improve efficiency by discontinuing inspections of
leased f a c i l i t i e s and r e a l l o c a t i n g s t a f f resources t o provide more
frequent inspections of new construction projects. ( page 27)
SUNSET FACTOR: THE EXTENT TO WHICH
THE SECTION HAS OPERATED WITHIN THE
PUBLIC INTEREST
FP& C is an administrative agency providing services t o other S t a t e
agencies and the Legislature. FP& C attempts t o operate i n the public
i n t e r e s t to the extent t h a t it is able t o meet the needs of the public
f o r 1) accurate information f o r planning purposes, and 2) evaluation of
expenditures of S t a t e monies f o r leased space. A s noted i n the discussion
of the previous sunset f a c t o r , improvements are needed i n both areas.
SUNSET FACTOR: THE EXTENT TO WHICH
RULES AND REGULATIONS PROMULGATED BY
THE SECTION ARE CONSISTENT WITH THE
LEGISLATIVE MANDATE
FP& C does not have s t a t u t o r y authority t o promulgate rules and
regulations. A. R. S. $ 41- 722 allows f o r r u l e s and regulations to be
promulgated by the DOA- Finance a s s i s t a n t d i r e c t o r . Therefore, FP& C could
i s s u e r u l e s and regulations through the a s s i s t a n t d i r e c t o r but has not
done so. There appears t o be a need f o r administrative r u l e s i n order t o
b e t t e r inform agencies concerning required procedures and provide f o r
agency compliance with those procedures. ( page 15)
SUNSET FACTOR: THE EXTENT TO WHICH THE
SECTION HAS ENCOURAGED INPUT FROM THE
PUBLIC BEFORE PROMULGATING I T S RULES AND
REGULATIONS AND THE EXTENT TO WHICH I T HAS
INFORMED THE PUBLIC AS TO I T S ACTIONS AND
THEIR EXPECTED IMPACT ON THE PUBLIC
A s noted previously, FP& C does not have e x p l i c i t s t a t u t o r y authority t o
promulgate administrative r u l e s and regulations. Because no rules and
regulations have been promulgated, t h i s f a c t o r does not apply t o FP& C.
SUNSET FACTOR: THE EXTENT TO WHICH THE
SECTION HAS BEEN ABLE TO INVESTIGATE AND
RESOLVE COMPLAINTS THAT ARE WITHIN ITS JURISDICTION
FP& C has no s t a t u t o r y responsiblity t o investigate and resolve
complaints. Therefore, t h i s f a c t o r was not addressed i n our review.
SUNSET FACTOR: THE EXTENT TO WHICH THE
ATTORNEY GENERAL OR ANY OTHER APPLICABLE
AGENCY OF STATE GOVERNMENT HAS THE AUTHORITY
TO PROSECUTE ACTIONS UNDER ENABLING LEGISLATION
Enabling l e g i s l a t i o n does not s p e c i f i c a l l y define prosecutable offenses or
authorize the Attorney General or other State agency to prosecute actions
r e l a t i n g t o FP& C. However, contract violations may be prosecuted by the
Attorney General.
SUNSET FACTOR: THE EXTENT TO WHICH THE
SECTION HAS ADDRESSED DEFICIENCIES I N THE
ENABLING STATUTES WHICH PREVENT IT FROM
FULFILLING ITS STATUTORY MANDATE
In 1980 FP& C supported the introduction of House B i l l 2094. Proposed
s t a t u t o r y changes included
- Requiring construction projects costing more than $ 500,000 t o
hold an appropriate c i t y or county building permit, and
- Requiring a construction manager t o be hired f o r construction
p r o j e c t s costing i n excess of $ 1,000,000 t o oversee
"... construction progress, ensure t h a t a l l contractors follow
applicable design standards and develop extensive work progress
records."
The Legislature d i d not approve House B i l l 2094. FP& C supports
l e g i s l a t i o n t o be introduced i n the 1982 session which contains similar
provisions f o r obtaining building permits.
SUNSET FACTOR: THE EXTENT TO WHICH
CHANGES ARE NECESSARY I N THE LAWS OF
THE SECTION TO ADEQUATELY COMPLY WITH
THE FACTORS LISTED I N THIS SUBSECTION
Our review revealed t h a t s t a t u t o r y changes a r e needed f o r FP& C t o comply
more adequately with the f a c t o r s l i s t e d i n t h i s subsection:
- A. R. S. $ 41- 726, subsection A, and $ 41- 728 should be amended t o
1) c l a r i f y FP& C1s r e s p o n s i b i l i t i e s , and 2) s p e c i f i c a l l y define
a l l exemptions from FP& C1s powers and duties. ( page 21)
- A. R. S. $ 41- 726, subsection A, should be amended t o provide FP& C
with authority t o 1) disapprove proposed leases, 2) cancel
unsatisfactory leases, 3) eliminate leased f a c i l i t y inspections,
and 4) require agencies t o submit information concerning leased
f a c i l i t i e s t o FP& C. ( pages 21 and 29)
FINDING I
STATUTORY CHANGES ARE NEEDED TO PROVIDE FP& C WITH THE ABILITY TO REVIEW
STATE LEASES OF REAL PROPERTY EFFECTIVELY.
A. R. S. section 41- 726, subsection A, requires FP& C to review proposed
projects, including leases, and to submit a report to the Legislature.
According to the FP& C manager, one of the primary purposes of t h i s
requirement is to provide information on the number of State employees
occupying leased space and the square footage leased. We found, however,
that the number of State employees i n leased space and the amount of space
leased is unknown. A s a result there is no single authoritative source
from which the Legislature, or others, can obtain lease information.
Additionally, there is no independent review, including FP& C's, to ensure
that agencies are not incurring excessive or unnecessary rent expense.
Specifically, we found that
1. The number of State employees occupying leased space, the square
footage of leased space and the amount of lease expense incurred
by State agencies are unknown.
2. Data on leased space is incomplete because many agencies are
exempt from FP& C ' s review.
3. Some agencies do not comply with requirements to notify FP& C of
proposed leases.
4. FP& C8s present lease review process is essentially meaningless.
5. The State may be incurring excessive and unnecessary lease
expense.
Number of Em~ lovees i n Leased
Space, Square- Footage Of Leased Space
and the Amount of Lease Ex~ ense Are Unknown
FP& C attempts to monitor the number of State employees occupying leased
space, the square footage of leased space and the amount of lease expense
incurred by State agencies as a means t o assess the need f o r constructing
new State- owned f a c i l i t i e s . FP& C ' s only sources of such information are
proposed leases submitted by agencies for review and FP& C1s annual
inspections of leased property." State agencies have not been required to
provide FP& C with any l i s t i n g s of leased f a c i l i t i e s , associated costs or
the number of employees occupying leased f a c i l i t i e s . Because not a l l
agencies submit proposed leases to FP& C and FP& C does not inspect a l l
leased f a c i l i t i e s , * FP& C's compendium of State f a c i l i t y leasing is
incomplete.
Additionally, State accounting records do not r e f l e c t accurately the
amount of lease expense incurred by State agencies. Our review revealed
t h a t S t a t e accounting records i n the DOA- General Accounting Office showed
that $ 5,022,000 was spent on rent during f i s c a l year 1979- 80 whereas
FP& C ' s 1979- 80 annual report t o the Legislature showed only $ 4,261,000 or
$ 761,000 less. It should be noted, however, that rent expense is
inconsistently reported i n the DOA- General Accounting Office records
because some leases include u t i l i t i e s , parking and various j a n i t o r i a l and
maintenance services i n rent expense while others do not. A s a result, it
is not possible to determine exactly how much s t a t e agencies are paying in
rent.
* See page 23 for a review of deficiencies i n FP& C1s lease s i t e
inspections process.
Not A l l Leases Are
Subject t o FPaC Review
A. R. S. $ 41- 726, subsection A, requires FP& C to review proposed projects,
including leases:
" A. The f a c i l i t i e s planning and construction section
s h a l l have the following powers and duties:
" 2. Review a l l proposed projects and improvements of
s t a t e agencies and submit a report thereon t o the
l e g i s l a t u r e . "
A project is defined f o r purposes of t h i s s t a t u t e i n A. R. S. $ 41- 725 as
follows :
"... the acquisition by purchase or lease of r e a l
property.. .. " ( ~ m ~ h a saidsd ed)
A. R. S. $ 41- 728 provides exemptions f o r the Board of Regents, the
l e g i s l a t i v e and j u d i c i a l branches, highway- related projects of the
Department of Transportation and projects whose t o t a l cost does not exceed
$ 5,000.
Further, three FP& C i n t e r p r e t a t i o n s of its governing s t a t u t e s have
resulted i n the exclusion of agencies which 1) have nonlease rentals* of
$ 5,000 per month or l e s s , 2) do not receive general fund appropriations,
or 3) have f a c i l i t i e s which are wholly or p a r t i a l l y f e d e r a l l y funded.
* Nonlease r e n t a l s a r e month- to- month r e n t a l s .
Although the FP& C manager has s t a t e d t h a t FP& C is not responsible f o r
reviewing nonlease r e n t a l s , such review is within the scope of FP& C's
duties. According t o a Legislative Council memorandum dated December 29,
1981," nonlease r e n t a l s a r e not exempt from review:
" The c o r r e c t i n t e r p r e t a t i o n of these s t a t u t e s ,
therefore, appears t o be t h a t the FP& C section must
review and report on a l l leases of r e a l property by
s t a t e agencies unless the t o t a l cost of the lease
1) is s t a t e d or known a s a sum c e r t a i n and 2) is f i v e
thousand d o l l a r s o r l e s s . The i n t e n t is t o exempt
those leases t h a t are known t o have a r e l a t i v e l y
minimal impact on the s t a t e budget. I f there is a
p o s s i b i l i t y t h a t t h e lease may exceed f i v e thousand
d o l l a r s , the l e g i s l a t u r e requires a report. Thus,
v i r t u a l l y no month to month- r e n t a l is - exempt from
review since by d e f i n i t i o n its term, and therefore the
t o t a l c o s t , is i n d e f i n i t e .
" Since the ' t o t a l cost* of a month t o month r e n t a l
is uncertain, it is impossible t o s t a t e c a t e g o r i c a l l y
t h a t it ' w i l l not exceed f i v e thousand d o l l a r s ' .
Consequently, such r e n t a l s should not be c a t e g o r i c a l l y
exempt from review by the FP& C section."
Further, the s t a t u t e s do not c l e a r l y define FP& C's r e s p o n s i b i l i t i e s f o r
such agencies and f a c i l i t i e s . According t o a Legislative Council
memorandum dated December 23, 1981,"" FP& C's governing s t a t u t e s are
ambiguous :
" Since c e r t a i n programs, projects and improvements and
s t a t e agencies a r e s p e c i f i c a l l y exempted i n A. R. S.
section 41- 728 from the FP& C s e c t i o n ' s powers and
d u t i e s . . . a l l other s t a t e programs, projects and
improvements and s t a t e agencies should be subject t o
those powers and duties.
* Appendix I contains the memorandum t e x t . ** Appendix I1 contains the memorandum text.
" A g r e a t d e a l of confusion a r i s e s when applying t h i s
s t a t u t e , even though s p e c i f i c exemptions are
listed... because it is not clear exactly which
buildings are s t a t e buildings and which projects and
improvements a r e projects and improvements of s t a t e
agencies f o r the purposes of A. R. S. section 41- 726,
subsection A. It is not c l e a r whether buildings b u i l t
with federal funds and used by s t a t e agencies are s t a t e
buildings and whether f e d e r a l l y financed projects and
improvements a r e projects and improvements of s t a t e
agencies under the s t a t u t e and f a l l under the FP& C
s e c t i o n ' s authority....
" A. R. S. section 41- 726, subsection A, is even more
ambiguous because it s t a t e s ' ( t ) he f a c i l i t i e s planning
and construction section s h a l l have the following
powers and duties.. .. ' ( ~ m ~ h a s i asd ded.) It is
unclear which of the items l i s t e d i n A. R. S. section
41- 726, subsection A a r e duties and which a r e powers of
the FP& C section. The d i s t i n c t i o n is important because
d u t i e s a r e mandatory and powers are permissive."
( Emphasis added)
Agencies Do Not Comply
with Required Procedures
In l i e u of s t a t u t o r y requirements, the S t a t e accounting manual b r i e f l y
o u t l i n e s procedures agencies should follow i n submitting proposed leases
f o r encumbrance." The manual s t a t e s t h a t lease agreements must be
approved by both the Office of the Attorney General and FP& C and t h a t
f a i l u r e t o obtain such approval w i l l r e s u l t i n t h e r e t u r n of the lease
document to the agency. It should be noted t h a t encumberances against
such leases may not be paid.
However, there is widespread noncompliance with t h e S t a t e accounting
manual. A review by audit s t a f f of a sample of 20 leases f o r which FP& C
claims it has r e s p o n s i b i l i t y f o r review revealed t h a t 55 percent were
already signed, executed and i n e f f e c t a t the time of FP& C review.
* An encumbrance is an obligation i n the form of a purchase order,
contract o r other authorized fund source and f o r which a part of such
fund source is reserved. It ceases t o be an incumbrance when paid o r
canceled.
There appears to be three causes f o r agency noncompliance with current
lease- review procedures. F i r s t , FP& C lacks s t a t u t o r y a u t h o r i t y t o compel
agencies to submit lease proposals f o r review or t o discipline those
agencies t h a t do not. Second, agencies are unaware of the required review
procedure. An Auditor General survey of eleven S t a t e agencies revealed
that four of the agency representatives involved i n executing leases were
not aware of t h e l e a s e review procedures i n the S t a t e accounting manual.
Finally, it appears t h a t the DOA- General Accounting Office is not checking
for FP& C approval on lease agreements or returning those agreements that
do not have approval.
FP& C Reviews Are
Essentially Meaningless
FP& C does not review lease agreements f o r reasonableness and economy.
Instead, FP& C's review is limited t o checking f o r t h e inclusion of an
escape clause i n the proposed agreement. According t o a Legislative
Council memorandum dated September 29, 1981,* FP& C has the power to
perform more comprehensive reviews. The memorandum s t a t e s i n part:
"... review of t h e b e n e f i t s to the s t a t e of the property
proposed t o be leased, the reasonableness of the
payments f o r the property proposed to be leased and
other questions related t o how the property proposed t o
be leased fits within t h e o v e r a l l s t a t e f a c i l i t i e s
acquisition and construction plans d e f i n i t e l y f a l l s
within the FP& C section's review authority."
Additionally, FP& C's review is a duplication of the more comprehensive
review performed by the Office of the Attorney General. The Office of the
Attorney General reviews leases f o r inclusion of a l l necessary provisions,
including an escape clause a s mandated by A. R. S. 338- 511.
The FP& C manager stated that reviews f o r economy are unproductive because
numerous leases are submitted a f t e r the effective date and FP& C lacks
authority to take corrective action i f unsatisfactory terms are discovered.
* Appendix I11 contains the memorandum text.
16
According to the same Legislative Council memorandum, FP& C cannot approve
or disapprove-' leases which it reviews :
"... A. R. s. section 41- 726, subsection A, paragraph 2
does not authorize the FP& C section to approve proposed
s t a t e agency f a c i l i t i e s leases. Paragraph 2 only
provides that the FP& C section s h a l l , among other
things, review a l l s t a t e agency projects ( a term which
includes leases) and submit a report thereon t o the
Legislature... .
" While the administrative authority of the FP& C section
to review s t a t e agency leases.. , appears to be
unquestionable, it is l e s s c l e a r whether t h e s e c t i o n
would have the authority t o deny a s t a t e agency the
right to lease space.. . More over.. , there is no express
or implied statutory reference to what happens should a
s t a t e agency proceed t o lease r e a l property a f t e r the
FP& C section has declined t o give its approval ...."
FP& C's lease review procedures are perfunctory when compared t o those of
the U. S. General Services Administration ( GSA). The GSA reviews f o r
location requirements, compliance with local safety codes, amount of space
per employee and reasonableness of cost.
The S t a t e May Be Incurring Excessive
and Unnecessary Lease Expense
FP& C's limited review and i n a b i l i t y t o disapprove uneconomical leases have
resulted i n inadequate control over lease expenditures by S t a t e agencies.
The appropriations process similarly serves a limited control function.
Agencies' spendings are limited by the amount appropriated t o each
expenditure c l a s s i f i c a t i o n . However, agencies are not required to
a l l o c a t e s p e c i f i c d o l l a r amounts to subclassifications within the
appropriation c l a s s i f i c a t i o n . Funds f o r lease expenditures are
appropriated within the c l a s s i f i c a t i o n of " other operating expenditures,"
which also includes u t i l i t i e s , maintenance and repairs. Therefore
agencies' expenditures f o r leased f a c i l i t i e s are not generally constrained
by the appropriations process.
During f i s c a l year 1979- 80, S t a t e expenditures f o r leased f a c i l i t y space
totaled a t l e a s t $ 4.2 million* and ranged from l e s s than $ 2 per square
foot t o almost $ 14 per square foot. Table 3 compares agencies' leases f o r
f a c i l i t y space during f i s c a l year 1979- 80.
* Recorded i n FP& C's annual report to the Legislature. S t a t e accounting
records reflected approximately $ 5 million f o r lease of privately
owned f a c i l i t i e s .
TABLE 3'
CC! 4PARISON OF FISCAL YEAR 1979- 80
LEASES BY STATE ACYNCIES BY COST PER SQUARE FOOT OF SPACE
Cost per
Sqohre Foot
? I, mber Square Annual
Agrncy - of Leases - Footage - Cost
12 - 13.99 Department of Transportation - Highway Safety 1 2,777 $ 77,858
Privaze, % chnlcal and Buslness Schools 1 216 3,000
R e g i s t r a r of Contractors 1 143 1,980
10 - 11.99 Department of Economic Security
Department of P u b l i c S a f e t y
Department of Revenue
8 - 9.99 S t a t e Compensation Fund
Department of Corrections
Department of Economic Security
Office of Tourism
Board of Osteopathic Examiners i n
Nedicine and Surgery
Department of P u b l i c S a f e t y
R e g i s t r a r of Contractors
Department of Health Services
F r u i t and Vegetable S t a n d a r d i z a ~ l o n
6 - 7.99 Arizona Outdoor Recreation Coordinating Commission 1
Attorney General 1
Central Arizona Water Conservation D i s t r i c t 1
S t a t e Compensation Fund 5
Department of Corrections 4
Depar~ ment of Economic Security 3 1
I n d u s t r i a l Commission of Arizona 1
J u s t i c e Planning Agency 1
Department of Law 1
Library, Archives and Public Records 1
Board of Medical Examiners 1
Board of Pardons and Paroles 1
Department of P u b l i c S a f e t y 4
Radiation Regulatory Agency 1
Supreme Court 1
Department of Water Resources 1
Department of Health Services 2
Real Estate Department 1
Department of Transportation 1
DOA- Weights and l.! easures Division 1
R e g i s t r a r of Contractors 2
Land Department 1
4 - 5.99 Radiation Regulatory Agency 1 3,946 19,443
S t a t e Compensation Fund 2 2,074 11,166
Department of Corrections 6 4,316 23,537
Department of Economic Security 36 127,409 652,273
Department of Education . 1 9,400 46,724
F r u i t and Vegetable Standardization 2 2,202 11,635
Library, Archives and Public Records 1 8,500 39,950
Department of P u b l i c S a f e t y 1 2,000 9,540
S t r u c t u r a l Pest Control Board 1 820 4,200
Department of Transportation 2 2,155 12,408
DOA- Weights and Measures 1 5,919 28,068
Commission of Agriculture and H o r t i c u l t u r e 2 450 2,160
Department of Revenue 1 312 1,701
Department of Health Services 1 1,000 5,954
DOA- Risk Management 1 500 2,250
2 - 3.99 Commission on the Arts and Humanities
Department of Corrections
Department of Economic Security
Department of Edacation
Department of Health Services
Department of Transportation
Property Valuation
Department of Revenue
R e g i s t r a r of Contractors
. O1 - 1.99 Corporation Commission
Department of Corrections
Department of Economic Security
Department of Public Safety
Department of Health Services
DOA- Public Buildings Maintenance
hsh* 5 intended t o show range of p r i c e s paid per square foot. True cost/ square f o o t
r e n t a l expenses a r e not reflected dne t o inclusion or absence of u t i l i t i e s . parking,
; a n l z o r l a l o r s e c r e t a r i a l service.
*' Table 3 was prepared from FP& C's leas? inventory l i s t i n q . The difference of $ 645,071
betwe- n t o t a l lease rxpendirares shown on Antma1 Report and t o t a l on t a b l e r e s u l t e d from
~ a t h e m a t i c a l e r r o r s on the Report and u n a v a l l a b r l i t y of cost per sqJare foot f o r some
i:. ems on the Inventory l i s t l n g . In addrtion, some l e a s e s shown on the r e p o r t a r e not
l i s t e d on t h e inventory.
Unlike other Western s t a t e s and several local e n t i t i e s , Arizona does not
have a centralized lease- approval or negotiation function.
An Auditor General survey of 18 western s t a t e s , the c i t i e s of Phoenix and
Tucson and 7 firms i n the State revealed that a majority require an
independent third- party approval as part of established leasing
procedures. Additionally, 70 percent have a centralized e n t i t y that
e i t h e r s e l e c t s lease s i t e s for, or lends assistance to, the leasing agency.
The procedures used by New Mexico i l l u s t r a t e how a centralized
lease- approval system works and the cost savings that it can generate.
New Mexico established a property control division ( PcD) with statutory
authority to " control t h e l e a s e or rental of space i n private buildings"
by s t a t e agencies. PCD i n New Mexico has recently established procedures
which include involvement i n locating and negotiating f o r leased space for
s t a t e agencies. These procedures w i l l be enforced through PCD statutory
authority to approve lease agreements. Centralization w i l l allow New
Mexico to obtain substantial cost savings and eliminate a perfunctory
review of leases a f t e r t h e i r execution which existed p r i o r t o legislative
change.
PCD was created i n New Mexico with the expectation that savings to the
s t a t e would occur by combining space needed by several agencies into
consolidated negotiations and lease agreements. According to the PCD,
" Utility costs may be consolidated ( and) cost per
square foot... is often reduced when the State is able
to rent large quantities of space i n a single building."
New Wexico's PCD has three employees and a computerized data bank of
available lease s i t e s . PCD costs approximately $ 60,000 a year to operate
and is expected t o generate $ 200,000 a year i n cost savings from
centralization of the lease negotiation function.
It appears t h a t s u b s t a n t i a l c o s t savings could be realized by
consolidating.. the lease negotiation functions which are presently
performed by each S t a t e agency. Further study is needed t o determine the
economic impact of c e n t r a l i z i n g t h i s function.
It should be noted t h a t FP& C s t a f f may lack s u f f i c i e n t resources t o
provide f o r adequate l e a s e reviews. FP& C presently has eight s t a f f
members: the FP& C manager, an engineer, an engineer/ architect , four
inspectors and an administrative secretary. It would appear t h a t only the
manager has the necessary expertise t o examine leases f o r reasonableness
and economy.
CONCLUSION
The number of S t a t e employees occupying leased space, the square footage
of leased space and the amount of lease expense incurred by S t a t e agencies
are unknown. Although FP& C is required t o review proposed leases of r e a l
property, it lacks a u t h o r i t y t o review a l l leases executed by S t a t e
agencies or t o approve o r disapprove such leases. A s a r e s u l t , 1 ) FP& C1s
review of proposed leases is e s s e n t i a l l y meaningless, 2) information used
i n assessing the need f o r new S t a t e construction is inadequate, and 3)
S t a t e lease expenditures may be excessive and unnecessary.
RECOMMENDATIONS
Consideration should be given t o the following recommendations:
1. The Legislature amend A. R. S. $ 541- 726, subsection A, and 41- 728 t o
a) c l a r i f y FP& C ' s r e s p o n s i b i l i t i e s and b) s p e c i f i c a l l y define a l l
exemptions from FP& C1s powers and duties.
2. The Legislature amend A. R. S. $ 41- 726, subsection A, t o provide t h a t
- exempt agencies submit to FP& C lists of leased f a c i l i t i e s and
amounts of the annual lease payments;
- nonexempt agencies submit proposed leases t o FP& C p r i o r t o
execution;
- FP& C be given authority t o disapprove proposed leases f o r
nonexempt agencies; and
- FP& C be given authority t o cancel leases of nonexempt agencies it
has not approved i f it determines t h e l e a s e is not i n the best
i n t e r e s t s of t h e S t a t e .
3. I f granted the s t a t u t o r y authority described i n Recommendation 2, FP& C
develop and implement guidelines f o r lease review and approval,
including reviews f o r reasonableness and economy.
4. A study be made of the f e a s i b i l i t y of and cost savings from
consolidating and c e n t r a l i z i n g t h e l e a s e negotiation function.
FINDING I1
FP& CIS INSPECTION OF LEASED FACILITIES SHOULD BE DISCONTINUED.
F a c i l i t i e s Planning and Construction ( FP& c) conducts annual s i t e
inspections of property leased by the S t a t e f o r the primary purpose of
monitoring the number of S t a t e employees occupying privately owned
f a c i l i t i e s t o i d e n t i f y t h e need t o construct additional S t a t e buildings.
According to the FP& C manager, lease s i t e inspections a r e also performed t o
- verify t h a t the S t a t e receives the square footage specified i n
the lease agreement;
- determine t h a t the f a c i l i t y is occupied f o r a valid public
purpose; and
- i d e n t i f y hazards.
Our review revealed t h a t FP& C inspections of leased f a c i l i t i e s do not
f u l f i l l t h e i r intended purpose and should be discontinued because
- A l l leased f a c i l i t i e s a r e n o t s u b j e c t t o inspection by FP& C;
- Many of the inspections t h a t FP& C does perform a r e e i t h e r
incomplete or inadequately documented;
- Few changes r e s u l t when a deficiency is i d e n t i f i e d by an FP& C
inspector; and
- FP& C1s inspections d u p l i c a t e , a t l e a s t p a r t i a l l y , inspections
performed by other e n t i t i e s .
Additionally, FP& C1s s t a f f resources devoted t o leased f a c i l i t y
inspections should be reallocated t o inspections of new construction
projects because 1) any information obtained by FP& C during leased
f a c i l i t y inspections can be obtained more e f f i c i e n t l y d i r e c t l y from the
agencies leasing the f a c i l i t i e s , and 2) new construction project
inspections are a higher FP& C p r i o r i t y . Finally, FP& C ' s s t a t u t o r y
r e s p o n s i b i l i t y regarding lease inspections should be c l a r i f i e d .
A l l Leased F a c i l i t i e s Are Not
Subject t o Inspections
Although FP& C attempts t o inspect each f a c i l i t y leased by a s t a t e agency
a t l e a s t once each f i s c a l year, we found t h a t 1 ) numerous leased and
rented properties are exempt from FP& C1s jurisdiction," and 2) FP& C did
not inspect some nonexempt properties.
FP& C becomes aware of the existence of leased f a c i l i t i e s when agencies
submit proposed leases t o FP& C f o r review.** However, some agencies are
exempt from having t o submit proposed leases t o FP& C f o r review. A s a
r e s u l t , FP& C not only does not inspect these leased f a c i l i t i e s but may not
know of the existence of the leased f a c i l i t i e s as well. Additionally,
when exempt agencies do submit leases t o FP& C f o r review an inspection
does not always ensue. Our review of a sample of 21 leases submitted by
exempt agencies t o FP& C revealed t h a t 29 percent were not subsequently
inspected by FP& C .
Further, it cannot be determined i f FP& C inspects a l l f a c i l i t i e s leased by
nonexempt agencies. Our review of a sample of 19 leases i n FP& C1s f i l e s
revealed t h a t there is no evidence t h a t FP& C conducted 26 percent of the
inspections it should have during f i s c a l years 1978- 79 through 1980- 81.
The FP& C s t a f f member responsible f o r supervising leased f a c i l i t y
inspections was unable t o determine i f the required inspections had been
conducted. The supervisor s t a t e d t h a t t h e inspections may have been
performed but the inspection reports discarded although FP& C inspectors
are required t o f i l e inspection reports. He a l s o s t a t e d t h a t the
inspections may not have been performed i f FP& C received lease agreements
f o r f a c i l i t i e s i n nonmetropolitan areas a f t e r inspections had been
completed i n those areas.
* Arizona s t a t u t e s provide exemptions f o r some agencies and for leases
of l e s s than $ 5,000. Further, FP& C8s i n t e r p r e t a t i o n of its s t a t u t o r y
r e s p o n s i b i l i t y has resulted i n additional exemptions. See page 13 f o r
a review of these exemptions.
** See page 11 f o r a review of deficiencies i n FP& C1s lease review
process.
Inspections Are Not Adequately
Documented and Mav Be Incomolete
Those inspections t h a t FP& C does perform are often e i t h e r incomplete o r
inadequately documented. Our review of 48 inspection reports f i l e d by
FP& C inspectors during the period July 1, 1979, and December 31, 1981,
revealed that 30 percent were so incomplete that audit s t a f f was unable t o
determine i f the inspections had been performed a s required.
In addition, many FP& C inspection reports do not adequately describe
i d e n t i f i e d deficiencies. Audit s t a f f reviewed 48 FP& C inspection reports
and noted t h a t 71 percent of t h e d e f i c i e n c i e s i d e n t i f i e d did not
adequately describe the nature of the violation. For example, one report
described the condition of the premises as " badly deteriorated" but f a i l e d
to specify those areas requiring improvement.
Finally, FP& C does not report t o t h e Legislature on the condition,
maintenance or u t i l i z a t i o n of leased f a c i l i t i e s . According t o the FP& C
manager, the primary purpose of FP& C inspections is t o gather data t o
assess the need f o r new S t a t e construction. However, 30 percent of the
FP& C reports reviewed by audit s t a f f did not indicate the number of S t a t e
employees occupying the leased f a c i l i t y which is one of the primary
f a c t o r s involved i n assessing construction needs.
Inspections Are Ineffective I n
Eliminatim Deficient Conditions
Although most FP& C inspection reports i d e n t i f y deficiencies i n leased
f a c i l i t i e s , FP& C lacks authority t o compel the landlord t o take corrective
action. According t o the Assistant Attorney General assigned to FP& C,
FP& C cannot require 1) owners of private f a c i l i t i e s t o make needed
improvements, or 2) lessee agencies t o cancel leases i f deficiencies are
not remedied.
FP& C's follow- up is limited to merely notifying the agency of any
deficiencies.- However, FP& C does not send agencies copies of inspection
reports. Further, audit s t a f f was unable to determine i f FP& C followed up
on any of the 75 deficiencies identified i n the 48 inspection reports it
reviewed.
Because FP& C lacks the authority to remedy deficiencies and agencies may
not be informed of identified deficiencies, few improvements i n the
condition of leased f a c i l i t i e s are made. Our review of the available
documentation f o r 30 leased f a c i l i t i e s revealed that 60 percent of the
identified deficiencies were not corrected and that new deficiencies were
identified upon reinspection i n 27 percent of the f a c i l i t i e s .
FP& C Inspections May Duplicate
Inspections by Other E n t i t i e s
FP& C's inspections do not appear to provide f o r the health and safety of
State employees i n privately owned f a c i l i t i e s . Other e n t i t i e s such as the
State Fire Marshall, local f i r e departments and the Arizona division of
the Federal Occupational Safety and Health Administration ( OSHA) conduct
inspections which appear to duplicate, a t least i n part, FP& C inspections.
The Phoenix City Fire Code Enforcement and Inspections section performs
annual inspections of some buildings. These inspections include reviews
for f i r e safety, f i r e code compliance and availability of handicap
f a c i l i t i e s . Penalties f o r noncompliance with applicable codes are
included i n the criminal code, and building owners may request inspections
a t no cost.
OSHA inspects privately owned f a c i l i t i e s upon request. These inspections
identify health and safety hazards based upon standard code specifications.
Better Use Can Be Made
Of Staff Resources
Use of FP& C s t a f f to perform inspections which are ineffective i n
obtaining corrective action and duplicate inspections performed by other
e n t i t i e s represent a misallocation of resources.
The one inspector assigned t o perform inspections outside of the
metropolitan - Phoenix area must perform mandated inspections of e x i s t i n g
0 State- owned buildings and new construction projects i n addition t o
l e a s e - s i t e inspections. According t o the FP& C manager, p r i o r i t y is given
t o new construction inspections. However, our review revealed t h a t
out- of- town new construction p r o j e c t s a r e not inspected as frequently as
local projects due t o s t a f f i n g limitations. It appears t h a t the
elimination of l e a s e - s i t e inspections would provide f o r more frequent
inspections of new construction p r o j e c t s .
Further, data used t o assess the need f o r new S t a t e f a c i l i t i e s , such as
the square footage of and the number of employees i n leased space, could
be obtained without FP& C inspections. I f Arizona s t a t u t e s were amended t o
require a l l agencies, both exempt and nonexempt, t o annually furnish FP& C
with information on the square footage of leased space and the number of
employees occupying such space FP& C would no longer need t o inspect leased
f a c i l i t i e s .
Statutory Responsibility
Should Be Clarified
A. R. S. 541- 726, subsection A, requires FP& C t o inspect S t a t e buildings:
" The f a c i l i t i e s planning and construction section s h a l l
have the following powers and duties:
" 1. Make an annual inspection of a l l s t a t e buildings
and report t o the l e g i s l a t u r e on the condition,
maintenance and u t i l i z a t i o n of such buildingsow
According t o a Legislative Council memorandum dated June 11, 1981,* the
inspections mandated by S t a t e l a w include leased f a c i l i t i e s :
* Appendix I V contains the memorandum t e x t .
27
"' Regular' inspection is mandated by s t a t u t e during the
process of constructing a building leased by the s t a t e
i n order to ensure compliance with approved building
plans and specifications. After construction has been
completed, the FP& C section is required by s t a t u t e to
i n s* ~ e c t a l l s t a t e buildings ( a c l a s s i f i c a t i o n which -
includes leased structures) annually for the purpose of
preparing a report to the Legislature on the condition,
maintenance and u t i l i z a t i o n of such buildings."
(~ mphasis added)
However, the Assistant Attorney General assigned to FP& C believes that the
statutory provision applies only t o State- owned f a c i l i t i e s , hot leased
space.
Because FP& C lease- site inspections do not appear to be an e f f i c i e n t o r
effective use of FP& C s t a f f , the Legislature should c l a r i f y FP& C1s
inspection responsibilities to specifically exclude leased space.
CONCLUSION
FP& C1s lease- site inspections are unnecessary i n that they do not
1) protect the i n t e r e s t s of the State by identifying health and safety
hazards i n a l l leased f a c i l i t i e s , 2) ensure that deficiencies w i l l be
corrected when identified, or 3) provide sufficient inputs into the State
construction needs assessment process. In addition, FP& C inspections
appear to duplicate, a t least i n part, inspections performed by other
agencies. A s a result, FP& C inspections of leased f a c i l i t i e s constitute
an inefficient and ineffective use of FP& C s t a f f .
RECOMMENDATIONS
Consideration should be given to the following recommendations:
1. The Legislature amend A. R. S. $ 41- 726, subsection A, paragraph 1 to
1) specifically exclude leased f a c i l i t i e s , and 2) require a l l
agencies to submit annually to FP& C a l i s t i n g of a l l leased
f a c i l i t i e s , the square footage and the number of employees occupying
those f a c i l i t i e s .
2. FP& C discontinue inspections of leased f a c i l i t i e s and reallocate its
s t a f f to performing inspections of new building construction.
3. I f FP& C is granted authority t o approve leases as recommended i n
Finding I; the a s s i s t a n t d i r e c t o r f o r finance should promulgate r u l e s
and regulations requiring agencies t o submit inspection reports from
l o c a l f i r e departments or t h e S t a t e F i r e Marshall and/ or OSHA with the
proposed lease p r i o r t o execution. ( see page 11)
OTHER PERTINENT INFORMATION
During the course of the a u d i t t h e following conditions were observed and
are reported here f o r the information of the Legislature.
F a c i l i t i e s Plannim and Construction
Has, i n Reality, a Limited Role
i n F a c i l i t i e s Planning
The name, " F a c i l i t i e s Planning and Construction," may be a misnomer i n
that FP& C has no s t a t u t o r y r e s p o n s i b i l i t y f o r c a p i t a l investment
planning. Arizona s t a t u t e s require only that FP& C a c t a s a repository for
plans prepared by S t a t e agencies. A. R. S. section 41- 726, subsection A,
paragraph 7 requires FP& C t o
" Maintain an updated plan at l e a s t f i v e years i n
advance of a l l improvements and projects which w i l l be
required by s t a t e agencies." ( Emphasis added)
Responsibility f o r developing such plans r e s t s with the a s s i s t a n t d i r e c t o r
for finance, under the provisions of A. R. S. section 41- 722, subsection B:
" The a s s i s t a n t d i r e c t o r f o r finance s h a l l :
" 4. Develop and maintain, i n cooperation with each
s t a t e agency and recommend t o the governor a
comprehensive, long- range plan f o r c a p i t a l outlay,
consistent with means available f o r financing the
same." ( Emphasis added)
The planning process c o n s i s t s of 1) development of plans and
2) preparation of land, building and improvement ( LB& I) requests by the
Executive Budget Office ( EBO). FP& C provides r e l a t i v e l y l i t t l e input i n t o
e i t h e r process. Those agencies submitting the l a r g e s t LB& I requests
seldom seek assistance from FP& C. Additionally, FP& C1s involvement with
EBO is limited t o providing information on the condition of e x i s t i n g
buildings, the number of leases received f o r review and cost estimates f o r
proposed projects.
FP& Cgs primary r o l e i n the planning process involves the Capitol Mall
Complex. However, because FP& C has no in- house planning staff, the
Capitol Mall Complex plans were developed by consultants. A s a r e s u l t
FP& C9s r o l e i n the Capitol Mall Complex plan is limited t o updating and
evaluating the plan annually t o determine the need t o construct new S t a t e
buildings. This need is based on 1) the t o t a l number of S t a t e
employees, 2) the number of S t a t e employees i n leased space, and
3) annual lease expenditures. It should be noted t h a t information
concerning leased f a c i l i t i e s is obtained through FP& Cgs lease review and
inspection processes and t h a t t h i s data is incomplete as discussed on
pages 12 and 23."
Means Used t o Finance New
Construction Mav Be Inadeauate
According t o the Arizona Constitution, A r t i c l e 9, Section 5, unsecured
debt of t h e S t a t e cannot exceed $ 350,000:
" The S t a t e may c o n t r a c t d e b t s t o supply the casual
d e f i c i t s or f a i l u r e s i n revenues, or t o meet expenses
not otherwise provided for; but the aggregate amoint of
such debts. d i r e c t and contina- e nt. whether contracted
by v i r t u e of one o r more l a w s , or at d i f f e r e n t periods
of time, s h a l l never exceed the sum of three hundred
and f i f t y thousand dollars...." ( Emphasis added)
A s a r e s u l t of t h i s r e l a t i v e l y low general obligation debt limit, the
S t a t e is e f f e c t i v e l y precluded from financing construction through debt
financing. S t a t e construction must be from current- year appropriations,
including the Capital Outlay S t a b i l i z a t i o n Fund, and available Federal
funds.
* Incomplete information may adversely a f f e c t the a b i l i t y of the EBO and
Legislature t o evaluate accurately LB& I requests.
LB& I appropriations from the general fund are residual amounts a f t e r
appropriations f o r operating expenses have been made and are dependent
upon projected revenues. Thus when revenues decline due t o general
economic conditions, LB& I appropriations experience a proportional
decrease. Unavailability of LB& I monies may n e c e s s i t a t e f r e e z e s on
current construction or postponement of proposed p r o j e c t s , r e s u l t i n g i n
higher costs when construction is resumed.
Agencies which are housed i n State- owned f a c i l i t i e s pay rent assessments
based on the square footage of the occupied space. These rent monies are
deposited i n the Capital Outlay S t a b i l i z a t i o n Fund f o r maintenance of
existing buildings and construction of new f a c i l i t i e s . Table 4 summarizes
actual and estimated sources and disposition of t h e C a p i t a l Outlay
S t a b i l i z a t i o n Fund f o r f i s c a l years 1976- 77 through 1981- 82.
- t
W
cri
01
4 a
00 00
M,
mo
t- L n r- m
c c G
m o
B, . ,' ; 2<
0) o m o o a , -
m r m d . rl : d k . d d o *
; $ 2 : .:
o m 5 0 k - u m ' H
. rl v B a + m
- 0 H a , O H 6 5
6. d m 5 h m - . m rl ad m
ah a n e a,
2 m m g E ' * g - m :
h C r v m M 5 U d + ' a
a m 0 c u m a 3 0 4
a m d r n m - u r c m m
m h . r i 0 - d o h rrP
. d O + h 0 0 v . A 0
d m h . 4 m h m h w
m anad a 3 ' ; 1 a a ~
3 m a 0 o m m .4 r r n u r n o v a a
4 rn W
The l o s s o f . p o t e n t i a l construction financing t o payment of rent f o r
privately owned space is p a r t i c u l a r l y s i g n i f i c a n t i n view of the
c o n s t i t u t i o n a l provision which prevents long- term debt financing of S t a t e
buildings. Monies expended on privately owned leased f a c i l i t i e s represent
a l o s t opportunity cost i n t h a t i f such money were instead placed i n the
Capital Outlay S t a b i l i z a t i o n fund it could be used t o finance the
construction of new State- owned f a c i l i t i e s .
In the absence of available S t a t e f a c i l i t i e s , agencies have been forced to
lease quarters throughout the State. The increasing amounts expended f o r
privately owned f a c i l i t i e s indicate t h a t planning and financing have been
inadequate t o provide f o r agencies' space needs. I n the ten- year period
between f i s c a l years 1968- 69 and 1978- 79, S t a t e expenditures f o r leased
space have increased more than 155 percent even when rent expense is
adjusted f o r i n f l a t i o n .
AREAS FOR FURTHER INQUIRY
During the course of our audit we identified a number of audit issues
which we could not pursue because of staffing and time constraints and the
unavailability of qualified consulting expertise.
These additional issues are
1. The adequacy of FP& Cgs new construction inspections;
2. The need for and adequacy of FP& C's reviews of plans and
specifications; and
3. The need f o r FP& C1s review of construction contracts.
THE CAPITOL BRUCE BABBITT, GOVERNOR
PHOENIX, ARIZONA 85007 ROBERT B. TANGUY, DIRECTOR
DONALD L. OLSON, ASSISTANT DIRECTOR
January 19, 1982
Mr. Douglas R. Norton, Auditor General
11 1 West Monroe, Suite 600
Phoenix, AZ 85003
Dear Mr. Norton:
We have had an opportunity to review the Perfomance Audit of the Depart-ment
of Administration, Finance Division, Facilities Planning & Construction
Section. This audit thoroughly identifies an area in which we realize
improvements are needed. The two findings identified in the report are
as follows:
FINDING I: STATUTORY CHANGES ARE NEEDED TO PROVIDE FP& C WITH THE
ABILITY TO REVIEW STATE LEASES OF REAL PROPERTY EFFECTIVELY.
We concur with the recommendation to clarify the statutory
responsi bi 1 i ties and more thoroughly define this function by
amending ARS 41- 726. We also agree with the suggestion that
a study be made of the feasibil ity and cost savings to be realized
by consolidating the 1 ease negotiation function. We recognize
the need for consolidation b u t we are not fully convinced that
this function should be located with the Facilities Planning &
Construction Section; however, i t should be within the framework
of the Department of Administration.
FINDING 11: FP& CIS INSPECTION OF LEASED FACILITIES SHOULD BE DIS-CONTINUED.
A t this writing we have implemented the recommendation contained
in the Auditor General's report to discontinue the inspections
of leased f a c i l i t i e s .
Sincerely,
#
m 4
Donald L. Olson
Assistant Director for Finance
GCL : bp
APPENDIX I
L E G I S L A T I V E COUNCIL MEMORANDUM 0- 81- 94
DECEMBER 29, 1981
December 29, 1981
or 0: Douglas R. Norton
Auditor General
FROhl: Arizona Legislative Council
I? E: Request for Research and S t a t u t o r y Interpretation ( 0- 81- 94)
This is in response to a request submitted on your behalf by Gerald A. Silva in a
rnerno dated December 17, 1981. No input was received from the A t t o r n e y G e n e r a l
concerning this request.
FACT SITUATION:
Arizona Revised S t a t u t e s ( A. R. S.) section 41- 726, subsection A, paragraph 2
requires the Department o f Administration, Finance Division, Facilities Planning and
Ir Construction ( FP& C) Section $ 0 review " all proposed projects and improvements of state
agencies. . .", which includes leased property according to the definition of " project"
provided in A. R. S. section 41- 725.
A. R. S. section 41- 728, paragraph 1 provides an exemption from FP& Cfs powers and
duties for the following projects:
C
Programs, projects, or irnprovements by any s t a t e agency if the t o t a l cost of
the entire proposed improvement or project will not exceed f i v e thousand
dollars.
QUESTION PRESENTED:
Are month to month rentals of real property whose monthly payments are less than
$ 5,009, but for w h i d ~ to tal annual c o s t e x c e e d s $ 5,000, exempt frorn review?
ANSWER: No.
a The interpretation of t h e t h r e e s t a t u t e s irlvolved in this question can be f a c i l i t a t e d
by reading thern together in two steps:
1. Substitute the definition for t h e term (" project") and combine the general duty
with the exception. The FPScC section is to:
Review all proposed /,. . acquisition( s) by. . . lease of real propertY7. . . of
s t a t e agencies and- submit a report thereon to the legislature
-/ c xcepff. . . /,? cquisition( s) by. . . lease of real property7. . . by any s t a t e
agency if thc total cost of the e n t i r e proposed. . . / acquisition by. . . lease
of real propcrty7 will not exceed five thousand dollars.
2. Remove tile excess verbiage and place in standard g r a ~ n r n a t i c a l
arrangcmcnt. It is thus the duty of the lTP& C to:
Review all proposed lease acquisitions by s t a t e agencies and report
thereon to the legislature unless the total cost will n o t exceed five
thousand dollars.
The question presented involves t h e application of the five thousand
dollar cxe! nption.
It should be noted initially t h a t an annual or monthly cost of a lease is
irrelevant. None of t h e s t a t u t e s involved in this question refer to an annual cost or any
other lirnitation relative to time. Instead, t h e criterion is the " total cost" of t h e lease.
Sloreover, the words " will not exceed" state a legislative requirement of a definite
knowledge of the total cost of the lease.
The c o r r e c t interpretation of t h e s e s t a t u t e s , t h e r e f o r e , appears t o b e t h a t the
FP& C section must review and r e p o r t on all leases of real property by state agencies
unless t h e t o t a l cost of the lease 1) is srat- 6 or kno\ in as a sum certalr, 2nd 2) Is five
thousand dollars or less. The intent is to exempt those leases t h a t are known to have a
relatively minirnal impact on the s t a t e budget. If there is a possibility t h a t the lease may
exceed five thousand dollars, t h e legislature requires a report. Thus, virtually no month
to month rental is exempt from review since by definition its term, and therefore the
t o t a l cost, is indefinite.
This interpretation is reinforced by the standard rules of s t a t u t o r y construction.
The only clement of this interpretation t h a t may be questioned ( because i t is not
explicitly s t a t e d in the statutes) is the requirement t h a t t h e t o t a l cost of t h e l e a s e b e
known as a sum certain. However, to disregard that element would expand the exernption
to projects where the t o t a l c o s t " might not exceed" five thousand dollars. This would not
only abrogate the specific s t a t u t o r y language " will not excced", but would violate the
judicial rile against- enlarging or adding t o an express exception. Wray v. Superior Court,
82 Ariz. 79 ( 1957). Exceptions to general s t a t u t o r y provisions a r e s t r i c t l y construed.
United States v. nodine ~ r o h u c eC o., 206 F. Supp. 20 1 -( D. c. Ariz. 1962).
CONCLUSION:
Since the " total cost" of a rnonth t o month rental is uncertain, i t is impossible to
s t a t e categorically that i t " will not exceed five thousand dollars". Consequently, such
rentals should not be categorically exempt frorn review by the FP& C section.
You may consider recornrncnding legislation to specifically address t h e question
prcscntcd involving month to month leases.
cc: Gerald A. Silva
Perfor rnance Audit Manager
APPENDIX I1
LEGISLATIVE COUNCIL ME? 4OR% NDU? 4 0- 81- 93
DECEMBER 23, 1981
TO: Douglas R. Sorton
Auditor General
FROXI: Arizona Legislative Council
EIE: Request for Research and Statutory Interpretation ( 0- 8 1- 93)
This is in response to a request on your behaii by Gera! d A. Silva in a memo dated
November 30, 1921. No input was received from the Atrorney General concerning this
request.
FACT SITUATION:
Arizona Xevised Statutes (,\. R. S.) section 41- 726, subsection A prescribes the powers and
duties of the Department of Administration ( DOA), Finance Division, FaciIities P! anning
and Construction section ( FP& C):
A. The facilities planning and construction secrion shall have the following
po:. vers and duties:
1. Make an mnual inspection of all s t a t e buildings and report to the
legislature on the condition, maintenance and utilization of such buildings.
2. Review all proposed projects and improvements of s t a t e agencies and
submit a report thereon to the legislature.
3. Xeview all architectural, engineering and constrilction contracts prior to
submission to t h e department oi law.
4. Approve plans and specifications and changes thereof for all projects and
improvements for which funds are appropriated by the legislature.
5. Review and approve all progress payments on all major projects and
improvcrnenis.
6. Make regular inspections of a l l projects and improvements during the
course of construction to insure compliance with the plans and
specifications approved by the assistant director.
7. hiaintain m updated plan a t least five years in advance of all
improvements and projects which will be required by s t a t e agencies.
Legisla~ ive Council memorandums 0- 51- 19, 0- 31- 32 and 0- 51- 5ri stated that FPScC is .
responsible for the duties specified in A. R. S. section 41- 726, subsection A, paragraphs 1,
buildings, projects and progress payments.
The FPJcC manager has stated that the following exempticns apply to all the provisions of
, A. R. S. section 4 1- 726, subsection A and that FP& C cannot exercise its powers over the
fofloving:
1. T?, e Arizona beard of regents, the judicial branch, the 1egisla: ive
branch and highway- related construction of the Department of
Trans? crt3iion are statutorily exemp~ eclh y A. R. S. section 111- 725.
2. Agencies which do not receive general fund appropriations, such as
the Compensation Fund, the Industrial Commission, Industries for the
Blind and Arizona Power Authority.
3. Agenci? s whose projects, both construction and leases, involve
Federal funds, such as: a) Department of Economic Security
buildings funded by the U. S. Department of Labor, b) certain
National Guard and Air National Guard projects, c) Department of
Corrections, Justice Planning Agency and Drug Strike Force ( Arizona
Criminal I n t e l l i g e ~ c e System Agency) projects funded by the U. S.
Law Enforcement lissistance Administration and d) Game and Fish
projects.
QUESTION PRESENTED:
Do the three types of exemptions s t a t e d above apply to d l seven statutory
responsibilities of FP& C?
ANSWER:
A. R. S. section 41- 728 provides that:
There shall be exempt from t h e provisions of this a r t i c l e relating to
plannina,:
I. Programs, projects or improvernents by any s t a t e agency if the
t o t a l cost of the entire proposed improvement or project will not exceed
five thousand dollars.
i!. The Arizona board of regents, e x c e p t t h a t the board of regents
shall inform the division of finance of its financial requirements of s t a t e
funds for programs, projects and improvements required for the ensuing
fiscal year or years.
3. Programs, projects or improvements of t h e s t a t e highway
commission relating to the construction, reconstruction, improvement or
maintenance of s t a t e high~~ vayosr bridges.
4. The legislative and judicial branches of s t a t e government, except
as prescribed by law. ( Emphasis added.)
The powers and duties of the facilities planning and c o n s t r u c t i ~ n section prescribed in
section b1- 725, subsection A, paragraphs 1 through 7 do not apply to any s t a t e agency
programs, projects or improvements costing five thousand dollars or less, the Arizona
Board of Regents, s t a t e highway commission ( s t a t e transportation board) programs,
projects or improvements relating to the construction, reconstruction, improvement or
maintenance of s t a t e Sishways or bridges or the legislative or judicizl branches becaus?
the:: 3 : e~ xe mpt under 4A, R. S. section 41- 72s.
- f i- 7 cardinal rule of statutory construction is : hat where the
1egis: atti: e has x r e d t o except c e r t a i n c a t e g ~ r i e sf rom the operation of a
particular law, it is to be presumed t h a t t h e legislature in its exceptions
intended to $ 0 only as far as i t did, and that additional exceptions are not
warranted. In other words, where there be express exceptions to a statute,
additional exceptions by implication are not favored. In re Monks Club, Inc.,
64 Wash. 2d 545, 394 P. 2d 804 ( 1964), and Knapczyk v. Ribicoff, 291 F.
Supp. 253 ( TD. 11 1. 1962). See also 2A Sands, Statutes and Statutory
Construction, section 47.11 ( 4th ed. 1973), where it is s t a t e d t h a t when
there is an express exception to a statute, no other exceptions will be
implied. Colorado Public Interest Research Group, Inc. v. Train, 507 F. 2d
743, 747 ( 1974).
" An enumeration of exceptions from the operation of a statute indicates that i t should
apply to all cases not specifically enu, nerated." Sutherland, Statutes and Statutory
Ccr, struc: icn seczion 47.11 ( 4- 57 ed., Sands, i973)). Since certain ;; rogra; ns, ; jrzjjec: s anc
improvements and state agencies are specifically exempted in A. R. S. section 41- 725 from
the FP& C section's powers and duties set forth in A. R. S. section 41- 726, subsection A, all
other state Frograms, projects and improvements and s t a t e agencies should be subject to
those powers and duties.
There are, however, limitations on which projects and improvemenrs , come under
certain powers and duties of the FPdcC section under A. R. S. section 41- 726, subsection A.
A. R. S. section 41- 726, subsection A, paragraph 4 applies to projects and
improvements for whit! funds are appropriated by the Lezislature. If the LegisJature
does not appropriate funds for a project or improvement, the F?& C section does not have
the authority or duty to approve the plans and specifications or changes in the plans 2nd
specifications of the project or improvement. The FP& C seczion does not have to approve
the plans and specifications of projeczs or improvements of s t a t e agencies which do not
receive general fund appropriations. The other paragraphs in A. R. S. section 41- 726,
subsection A should apply whether or not a state agency receives general fund
appropriations.
It should also be pointed out that A. R. S. section 41- 726, subsection A, paragraph 5
only applies to major projec;~ and improvements. The FP& C section should only review
and approve progress paymenrs on major projects or improvements. See Arizona
Legisla~ iveC cuncil blemorandum ( 0- 81- 72) fcr discussion of the term " major".
A great deal of confusion arises when applying this statute, even though specific
exemptions are listed in A. R. S. section 41- 728, because it is not clear exactly which
buildings are state buildings and which projects and improvements are projects and
improvements of state agencies for the purposes of A. R. S. section 41- 726, subsection A.
I t is not clear whether buildings built with federal funds and used by s t a t e agencies are
state buildings and whether federally financed projects and improvements are projects and
improvements of state agencies under the statute and fall under the FP& C section's
authority. It seems that buildings used by state agencies and projects and improvements
of state agencies should be considered s t a t e buildings and projects and improvements of
state agencies, but same ambiguity does exist if they are federally funded. .
A. R. S. section 41- 726, subsection A is even more ambiguous because it states
l- f/ 7 he facilities pia~ ninga nd construction section shall have the following powers and
duties. . . . ." ( ~ m p h a s i sa dded.) It is unclear which of the items Listed in A. R. S. section
41- 726, subsecticn A are duties and which are powers of the FPEcC section. The
distinction is impcrtmt because duties a r e mandatory and powers are permissive.
The state agencies and programs, projects and improvements listed in A. R. S.
section 41- 723 are clearly exempt from all the powers and duties of the FP& C section set
forxh in A. R. S. section 41- 276, subsectien A. Projects and izp; cvements for which the
Legisjature has not appropriated funds are not subject to A. R. S. section 4 1- 726,
subsection A, paragraph 4, but this limitation in paragraph 4 does not necessarily prohibit
application of the other paragraphs in A. R. S. section 41- 726, subsection .4 to such
projects and improvements. It is n o t c l e a r w h e ~ h e rt he FP& C section's powers m d duries
cover buildings built with federal funds and federally financed projects m d improvements.
- Since it is unclear if the powers md duties of the FP& C section under ' 4. R. S
section 41- 726, subsection A cover buildings built with federal funds and federally
financed projects and improvements, and since i t is unclear which of the functions listed
under A. R. S. section 41- 726, subsection A are duties and which are powers, your office
may wish to recommend corrective legislation to the Legislature.
cc: Gerald A. Silva
Performance Audit Manager
APPENDIX I11
LEGISLATIVE COUNCIL PE'TORABDUM 0- 81- 19
SEPTEMBER 29, 1981
September 23, 19s 1
T 3: Douglas X. Norton, Auditor General
FROICI: Ric5ard R. Greenfield, Deputy Director
ii E: Request f o r Research and S t a t u t o r y I n t e r p r e t a t i o n ( 0- 8 1- 19)
This is in response to a request submitted on your behalf by Gerald A.
Silva in a memo dared September 25, 1351. No input was receives irom the
Attorney Geceral concerning this request.
FACT SITUATION:
Arizona Fievised Statutes ( A. R. S.) section 41- 726 requires the Facilities
Planning end Construction Section ( FPScC) of rhe Department of ,4drninistrstion
t o , among o t h e r things:
Review all proposed projects and iinprovernents of state agencies and
submit a report thereon t o t h e legislature.
As defined by A. R. S. section 41- 725, paragraph 3:
'' Project'' mezns the acquisition by purchase or lease of r e a l property or
the construction of new buildings, or both.
QUESTIONS PRESENTED:
1. In reviewing a lease made by a S t a t e agency with a p r i v a t e concern
whar provisions ir! the lease agreement does FPEcC have the authority t o review
( i. e., legality, location, lease paymnnts, etc.)?
2. Does F P K have the authority in A. R. S. section 41- 736 ro deny a
State agency the right ; o l e a s e space as proposed by that agency based on the
disapproval of a lease provision discussed in question 17
3. Is the month to rnon~ hr ental af r e a l property inclcded in the definition
of " ~ r o j e c t " prescribed by A. R. S. section 41- 725?
1. The 3epartrnent of , Administration, Facilities Planning and
Cansrruction S;. c: ior! ( FP& CI has the authority to review, under t h e referenced
stacute, all aspects of s t a t e agency leasing procedures which it deems
a? c1.:,? ri3te in the exercise cf i t j s t s t u t ~ r yr esponsibili~ iesa s ; he stare's primary
f a c i l ties l 2 n n i n g 3nd construc: ion su; crvisicn off ice. T5e scc; ion ; nu;: f o l l o * ~ ,
howevpr, J. " rule of : e2sonu ar. d ret~ iew srily those lease provi. iisns with .. vhic5
can rezsecabiy : e expected to have nb1? ertise. 2eview of : he Iegs1i: y of specific
leise ; rovisi~, n; ; voui?, f ~ erxs , n? le, 5e heyanj : he presaniec! exper: ise of F? 2C
sccrizr. ; r ~ f f .
111- 1
2. Probably not. There is no specific s t a t u t o r y authority under A. R. S.
secrion 41- 726 for the FP& C section to deny a s t a t e agency t h e right t o lease
s p a c e a s proposed by that agency based on the FF& C section's disapproval of
certain lease provisions. A. X. S. section 41- 726, subsection A, paragraph 2
merely providcs t h a t t h e FPStC section " review" all proposed projects.
P ~ r n g r a p h + of this subsection provides t h a t t h e FP& C section approve " plans
and specifications and c9anges thereof for all projects". Authorization t o the
FP& C s e c t i o n t o approve plans and specifications for projects is different from
authorization t o the section t o review, approve or deny the projects themselves.
3. Yes. A month t o month rental of real property is a periodic tenancy
and is in the nature of a tenancy at will, or..? of the four major types of leasehold
interests whit+ can be created under common law. A leasehold estate is, among
other things, an estate in realty held under a lease. Since a lease is defined as
within the term " project" under ,4. R. S. section 41- 725, paragraph 3, a month t o
month r e n t a l may b e similarly defined within the referenced s t a r u t e . hloreover,
since the majcr purpose of A. R. S. section 41- 725, subsection A: paragraph 2 is t o
al1o: v FP& C to review the space uses of s t a t e agencies and report t o the
Legislature, i t would require a substantial diversion from apparent legislative
intent t o allow m agency t o enter 3 month to month r e n t a l arrange, nent and thus
avoid rzvie7. v by the FP& C.
DISCUSSION: -,
Administrative agencies a r e creatures of legislation without inherent or
common law powers. The general rule applied to s t a t u t e s granting powers t o
administrative agencies is t h a t t h e y have o ~ l yth ose powers t h a t a r e conferred
either e x p r ~ s s l y or by necessary implication. Sutherland, S ~ a t u t oyr
C o n s t r ~ c ~ i o nse, c tion 65.02 ( 4th ed., Sands, 1972); Corcoration Ccrnmission v.
Con5oiidated Staye C o m ~ m y6, 3 ,. iriz. 257, 161 P. 2d 110 ( 1945); Garvev v. Trew,
611 Ariz. 342, 170 P. 2d 845 ( 1946). The FPgiC section must follow the provisions
of the Xrizcna Revised Statutes in exercising its administrative powzrs and
duties relating to the review of ail proposed projects and improvements of s t a t e
agencies, as .. veil as with respect to every other m a t t e r .
1. In ? hat. the s t a t u t e s do not prescribe the specific review procedures to
be followed by the FP& C section, refkrence must be- made to the meclning of the
operative + er; ns in the enabling statutes. It is an elementary principle af
s t a t u t ~ y cons: ruction that each word in a s t a t u t e will be given e f f e c t .
Sutherl;~ 7c', section 46.06; S t a t e v. S~ iperior Court In and For '~ laricopa County,
1: 3 ,- lriz. 2118, 553 P. 2d 626 ( 1976). The \, vt> rds of 3 s: atute are t o be given their
cornmin rneal? inp, unless it appears from t h e c o n t e x t or ~ rhersvise that a
d i f f ? r e ~ n tr n e ~ ~ i nisv intended. Xoss v. Irldustrial Comnission, ! 12 . iriz. 3- 53,
540, P. 2d 1234 ( 1 6 3 ) .
Acccrding to - clack's Law Dictions- 11 5th Ed. 1979), the word " review"
[ nezns:
The rerm " review" has various meanings, dependent on its use in any given
statute. Vinvard v. Vinyard, 4 Terry 422, 48 X. 2d 497, 499 ( 1946). Use of t h e
t e r v review In an admlnistrarive setting implies powers more limited than in a
juoicial context, where the a u ~ h o r i t yt o review c l n mean the same rhing as The
authority to revise. State v. Griifiths, 137 ' rash. 498, 292 P. 969 ( 1946).
i31~ ci<' s Law Dictionary ( 5th Ed. 1979), defines the word " lease" as, in
part:
Any agreement which gives rise t o relationship of landlord and tenanr
( r e d property) or lessor and lessee ( r e d or personal property). . . . Contract Ior exclusive possession of lands for determinare
period. . . . Conveyance, grant or devise of realty for designated period
' vviih reversion to granTor. Conveyance of i n t e r e s t i n r e a l property for
specified period or at will . . . .
A. R. S. section 41- 726, subsection A, paragraph 2 provides t h a t t h e FP& C
section review all ? reposed projects of state agencies and submit a report
thereon : o the Legislature. A. R. S. section 41- 725, parsgraph 3 defines " projecT"
as the a c q ~ ~ i s i t i obny purci~ aseJ r lease of re21 property or the construcaon of
new bui! dir, gs, ar both. Whiie review of the legislative history of these two
sections provides no specific gijldance as to legislative intent, I t seems clear t h a t
the two secrions, read together, require the FPScC section to review d l proposed
state agency leases for the acquisition of real property or the construction of
ne\. v hidings. There is nothing in applicable s t a t e s t a t u t e s or available case law
t o s u ~ ~ i ' tshta t the lease review authority of the FPScC section is limited other
than by a " rule of reason" 10 those subjects within the section's s t a t u t o r y charge
as the over2ll s t a t e facilities planning and constructian supervision agency. If
; he Legislature had i ~ t e ~ d ethde lease review authority of the FP& C section to
be limited in the pianning and construction supervision areas, i t must be assuined
t h a i the Legislarure would have so provided. Thus, the F?& C section has the
authority ta review all aspects of s t a t e a3ency leasing arrangements which i t
deems r. ecessary in t h e e x e r c i s e of its statutory responsibilities under A. 2. S.
section ' 11- 725, subsection A, paragraph 3.
The F?& C section should not be expected, however, to exercise review
responsibilities cutside of its ins~ itutional mission. The section has no legal
staff. Thus, i t sh~ clld not be expected, rior should i t mder: ake on i t s awn
initiative, to st!- ldy the iegality of speciiic pr3visior. s in a pr3posed s t a t e agency
real property lease. On the other nand, review of the benefits to the s t a t e of the
pro? ert; l proposed t o b e leased, the reasonableness of the payments f o r the
prgpsrry ? rdposed to he leased and other questions related to how the r o p e r t y
p r s p ~ w d do 5e leased < its with~ n overall s t 3 t e fzcilities acquisition and
can;: r*; cticn p! ans definitely falls within the F P K section's review authority.
2. First of 311, ,4. R. S. s2c: io. l 41- 735, subsec~ ionA , p a r a g r ~ p h2 does 701
3 1 ~ t k r i z f: 2kc FPkC section TO apcrove praposed s t a t e .3ge? cy f a c ~ l i : ~ ? s! a s e s .
Fdr3tr, cs> h 2 .) nly provi6es that t; le FPkC s. xtion shall, amon5 other thiqgs,
rc\; i<. v ~ l lst ate agency projects ( 3 term ~ n i c hin cluces leases) anif jcr5nit 3
rt. rcrr t h 1 ~ e 9 . 1: o : he ie= isla: ure. .4ad the Leslslature intenqed in :? is
? ir3$ rl; n :: Fve : I: e FF2C ses:: cn 3ilthcr1ty to deny a s t z t e q e n c y le2se. i;
would So provided. The pracess of review in an administrative setting, as
noted above, does not necessarily include t h e right to approve or deny,
Paragraph 4 of X. R. S. section 41- 726, subsection A is closer t o the grant
of enabling authority presumed in question number 2. Paragraph 4 provides that
the FP& C section:
Approve plans a d specifications m d changes thereof for all projects and
improvements for which funds are appropriated by rhe legislature.
Again, review of the available legislative history for this section f a i l s to
suggest precise legislative intent with respect t o t h e word " approve". According
to Black's Lzw Dicrionar:~ ( 5th Ed. 19791, the word " approve" means:
To be satisfied with; to c o ~ f i r m , n otify, sancrion or consent t o some act
or thing done by another. To sanction officially; t o notify; t o
conform . . . .
In substance, A. R. S. section 41- 726, subsection A, paragraph 4 provides,
for the purpose of this memorandum, that t h e FP& C section approve plans and
specifications for all s t a t e agency projects ( including leases) for which n o n i e s
are appropriated by t h e Legislature. Note that t h e s t z t u t e providzs that t h e
FP& C section approve project plans and specifications. The phrasing relating t o
project plans and specifications rather than the projects thernse! ves may b e
explained in part by the f a c t t h a t t h e clear emphasis in the s t a t u t e s relating t o
the FP& C section is on x a t e facilities construction. It is difficult to construe a
s t a t u t o r y grant of authority to approve project plans and specifications as
including the authority to approve or deny a lease on the basis of specific lease
provisions.
While the administr2tive authority of the FPScC section to revie1. v state
agency leases under A. R. S. section 41- 725, subsection A, paragraph 2, with
respect to c o n f o r m ~ c e with overall s t a t e facilities planning and construction
obj: ctives, a? pears to be unq~.~ estionablei , t is less clear whether t h e section
, vould have the authority to deny a s t a t e agency the right to lease space in the
given f a c t sittlation. An administrative agency has only such powers as a r e
(: sfiferred either expressly 3r by necessary implication. The problem i s with the
rwo operative statutory provisions. One refers to the review of all s t a t e agency
7rojests for the purpose of preparing a report f o r the Legislature and the other •
rzfers t o the approval of plans and specifications of all projects and not to
zpproval or denid of the projects themselves. There is no reference t o any
surharity for the FPkC section to decy a lease on grounds of disapproval of
specific lease provisions. bloreover, even assuming rkat e. uisting law can be
cons: ru~ d to fit the given f z s t sit3ation, there is no express or implied s t a t u t o r y
refcrznce to what h a ~ p e n ss hould a s t a t e agency proceed to ! ease r e a l property
d r e r the F P K seccion has declined to give its approval to plans and
s p e c i f i c ~ t i o n sr elating ro the ie? se in question.
3. Under .\. R. S, section b1- 72j. paragrzph 3, "? reject" is defined as ":' ie
? cquis: rion by p r c h a s e lease of ieal propertv or ti7e construction oi - ew
3ulld. 1: s, cr bor, ci." . A monrh ta ; noRrh rental of r t d pro? e:-: y ; s a per: oSir
..
tenancy and is in the nature of a tenancy at will, one of the four major leasehold
types of e s t a t e s which can be created under common law. A leasehold e s t a t e is
merely an e s t a t e in realty held under a lezse. Defining a rnonth t o month ren??!
as a tenancy at will, and, as such, a form of lease, means that i t is included
under A. R. S. section 41- 725, which defines ";> reject" to include lease.
In t h a t the major purpose of A. R. S. section 41- 726, substction A,
paragraph 2 is to allow FP& C to review the space uses of s t a t e agencies and
report to t h e Legislature, it would require a su5stantial diversion from apparent
legislative intent to al1o. x an agency to enrer a , month t o rnonth renral
arrangement and thus avoid review by the FP& C. ? tloreover, to allow an agency
to enter a month to month rental arrangemmt and thus avoid review might well
prove to be rnore expensive t o t h e state and preclude long- range facilities
planning.
The s t a t u t e s relating t o review and approval of s t a t e agency leases Sy the
Department of , Administration, Facilities Planning and Construction Section are
unclear In several resgec: s. If i t is deerned appropriate t h a t t h e section esecilte
this review function according t o speciiic c r i t e r i a and procedures and t h a t i t
have the authority to reject leases which do not meet this c r i t e r i a , appropriate
corrective legislation should be recommended t o t h e Legisia~ ure.
cc: Gerald A. Silva
Perforrnmce Audit :" laager
June 11, 1981
TO: Douglas R. Norton
Auditor General
FROM: Arizona Legislative Council
RE: Request for Research and Statutory Interpretation ( 0- 8 1- 54)
This is in response to a request submitted on your behalf by Gerald A. Silva in a .
memo dated June 3, 1981 and received by this office on June 5, 1981. No input was ,
received from the Attorney General concerning this request.
FACT SITUATION:
Arizona Revised Statutes ( A. R. S.) section 41- 726 provides for the Facilities
Planning and ConsiructIon ( FPiStC) section of the aivision of Finance of the Department
of Administration ( DOA) to:
1. Make an annual inspection of all state buildings and report t o the
legislature on the condition, maintenance and utilization of such buildings.
2. Review all proposed projects and improvements of s t a t e agencies
and submit a report thereon to the legislature.
3. Review all architectural, engineering and construction contracts
prior to submission to the department of law.
4. Approve plans and specifications and changes thereof for all .
projects and improvements for which funds a r e appropriated by the
legislature.
5. Review and approve all progress payments on all major projects
and improvements.
6 . Make regular inspections of all projects and improvements during
the course of construction to insure compliance with the plans and
specifications approved by the assistant director.
7. Maintain an updated plan at least five years in advance of all
improvements and projects which will be required by state agencies.
A. R. S. section 41- 725 defines " project" as the acquisition by purchase or lease of real
property or the construction of new buildings, or both.
QUESTIONS PRESENTED:
1. Do the statutes require the FP& C section t o make an inspection of leased
property?" a
2. If so, is this inspection t o take place annually, before t h e f i r s t l e a s e term takes
effect, sometime during the first lease term o r f o r each renewal term?
ANSWERS:
a
1. In general, yes. Pursuant to A. R. S. sections 41- 725 and 41- 726, the FPCcC
section is required t o inspect a leased building during the actual process of construction as
well as after construction i s completed. The purpose of each inspection is, however,
different.
2. " Regular" inspection i s mandated by s t a t u t e during the process of constructing a ( I
building leased by t h e s t a t e in order to insure compliance with approved building plans and
s p 5 f i c a t i o n s . After construction has been completed, the FP& C . section is required by
statute to inspect all state buildings ( a classification which includes leased structures)
annually for the purpose of preparing a report to the Legislature on the conditien,
maintenance and utilization of such buildings.
( I
DISCUSSION:
1. It is an elementary principle of statutory construction that each word in a
statute will be eiven effect. Sutherland. Statutes and Statutorv Construction section U
46.06 ( 4th ed., Sands, 1972); State v. Superior Court In and For Maricopa County, 113
Ariz. 248, 550 P. 2d 626. The words of a s t a t u t e a r e to be ! ziven their common meaning ( I
unless i t - appears from the context or otherwise that a difuferent meaning is intended.
Ross v. Industrial Commission, 112 Ariz. 253, 540 P. 2d 1234 ( 1975).
A. R. S. section 41- 726, subsection A, paragraph 6 requires the FP& C section to:
Make regular inspections of all projects and improvements during the course
of construction to insure compliance with the plans and specifications
approved by the assistant director -/ f or finance of the department of
administration- 7 .
A. R. S. section 41 - 725, paragraph 1 defines " improvement" for the purpose of
A. R. S. section 41- 726, subsection A, paragraph 6, as "-/ q he alteration, enlargement,
rehabilitation or repair of existing s t a t e buildings."
A. R. S. section 41- 725, paragraph 3 defines " project" for the purpose of A. R. S.
section 41- 726, subsection A, paragraph 6, as " l q h e acquisition by purchase or lease of
r e d property or the construction of new buildingsTor both."
Reading A. R. S. section 41- 725, paragraph 3 and A. R. S. section 41- 726, subsection
A, paragraph 6 together, there is little doubt t h a t the FP& C section is statutorily required
-
* Per our telephone conversation with Mary Lynn of your staff on June 1 I , 1981, we
msune for the purposes of this rnemo t h a t " leased properry" indudes leased buildings.
IV- 2
to make regular inspections of leased buildings during the actual process of construction.
The purpose of t6ese construction inspections is to determine compliance with approved
construction plans and specifications. It is well to emphasize t h a t A. R. S. section 41- 726,
subsection A, paragraph 6 requires inspections only during the actual process of building
construction. For this paragraph t o apply in the fact situation under consideration, the
lease between the state and the future building owner would have to be in effea prior t o
- the start of or during construction. The FP& C section would not be responsible under
paragraph 6 for the construction inspection of a facility which is not leased by the s t a t e
until after construction is completed.
Once construction is completed, A. R. S. section 41- 726, subsection A, paragraph 1
requires inspections of " all state buildingsJt ( a classification which includes leased
structures) on an annual basis. T k point z ~ pdur pose of these inspections is the
development of information for collection inro a report t o t h e Legislature on the
condition, maintenance and utilization of all s t a t e buildings.
2. The timing of the inspection during the course of construction should be
governed by the word " regular1' in A. Z. S. section 41- 726, subsection A, paragraph 6.
According to Black's Law Dictionary ( 5th ed., 1979), " regular" means:
Steady or uniform , i n course, practice or occurrence; not subject t o
unexplained or irrational variation. Usual, customary and general. Gerdd
v. American Casualty Co. of Reading, Pa., D. C. N. C., 249 F. Supp. 355, 357
( 1 966).
Administrative agencies a r e creatures of legislation without inherent or common
law powers. The general rule applied to statutes granting powers t o administrative
agencies is that they have only' those powers as are conferred either expressly or by
necessary implication. Sutherland, id., section 65.02; Corporation Commission v.
Consolidated Stage Company, 63 Ariz. - 257, 161 P. 2d 1 10 ( 1 945); Garvey v. Trew, 64 Ariz.
342, 170 P. 2d 845 ( 1 946). Under A. R. S. section 41- 726, the function of the FP& C section
is to serve as the general office planning and construction supervision offic? for the state.
Necessary powers to effectuate this objective a r e implied. In order to properly respond to
this statutory mandate, FP& C section inspection authority must include state- leased as
well as state- owned facilities.
Accordingly, during the actual process of construction of a building under lease t o
the state and followin? n from the above definition of " regular", inspection should be as often as necessary t o insure compliance with the construction plans and specifications
approved by the assistant director for finance. Thereafter, t h e inspection of s t a t e )
buildings which a r e leased should be on an annual basis pursuant t o A. R. S. section 41- 726, '
subsection A, paragraph 1. Paragraph 1 requires an annual inspection of " all s t a t e
buildingst' ( a classification which includes leased structures) for the purpose of reporting
to the Legislature on the condition, maintenance and utilization of all s t a t e buildings.
If the FP& C section finds i t difficult t o comply with its present inspection
responsibilities because of staff or funding problems, the appropriate committees of the
Legislature should be apprised.
cc: Gerald A. Silva
Performance Audit Manager
IV- 3