Kansas lawmakers pondered Tuesday whether the Department of Administration broke the law when it entered into a $20 million lease agreement with Bank of America in late December.
Sarah Shipman, the agency’s acting secretary, said the department consulted with three law firms before proceeding with the deal, which is meant to finance the construction of a new power plant for state office buildings in Topeka. The state plans to demolish the Docking Building, which now houses the generator.
The project was paused last week after lawmakers raised concerns. Shipman said the delays are costing the state between $8,000 and $20,000 a day. The state already has a construction contract.
Lawmakers, however, said they remain concerned about the total cost of the project, $19.9 million through 2031, as the state pays installments on a lease-to-own agreement.
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Breaking the deal would cost the state an estimated $490,000, according to lawmakers.
The Joint Committee on State Building Construction asked the agency for additional information on the agreement in October. Shipman said she had three senior staffers at that meeting but did not receive that message. The agency went ahead with deal on Dec. 29.
“I think we were all surprised,” said Sen. Kay Wolf, R-Prairie Village, chair of the committee, at a meeting Tuesday.
Rep. Mark Hutton, R-Wichita, said there were two questions: whether the agency had the authority to enter into the deal, which he said was above his pay grade, and whether the deal made the most financial sense for the state, which he said requires more study.
An hour before the meeting, the governor’s office sent out a news release saying that alternative proposals to keep parts of the Docking Building would have cost between $24 million and $42 million, compared with the $17.7 million it will cost to tear it down and build the new energy center.
Lawmakers say that even if the deal turns out to be the best financial choice, the agency’s acceptance of it without legislative approval is problematic.
“I just think this is a bad way to do business. … It may even be illegal,” Rep. Joseph Alcala, D-Topeka, told Shipman.
The agency says two laws empowered Shipman to make the deal: a statute that gives the cabinet secretary the authority to enter into leases; and 2014 legislation authorizing the Department of Administration to explore the sale of state office buildings to finance the demolition of the Docking Building.
“We were authorized to look into whether it was economically feasible to sell the buildings. And we did those studies and determined it was not,” Shipman said.
The agency then chose the lease agreement with Bank of America. The deal was brokered by the Kansas Development Finance Authority, and its attorney signed off on it.
“The Department of Administration believes it had authority to enter into this,” said Shipman, whose confirmation hearing as secretary was delayed last week. “Through the financing transaction with KDFA, three separate law firms also looked at that agreement.”
She added that Bank of America’s “counsel looked at it very carefully.”
Wolf promised to hold more hearings on the issue to determine the best course forward for the state.