Space in Publicly-Owned Buildings

4536 - Space in Publicly-Owned Buildings (Rev. 1, 05-21-04) The following standards apply to charges for office space in a publicly-owned building: A. Actual Cost - The amount charged for office space in a publicly-owned building must not exceed actual costs over a long-run period. The agency is required to produce records of actual costs for examination, as necessary. The cost of land may not be included as part of the cost of initial construction or purchase of publicly-owned buildings in determining rental charges. This exclusion is based on the fact that land has no actual physical depreciation. The State would always have the land as an asset long after the building had become obsolete or demolished and value could be realized. The estimated useful life of the building should be established if depreciation is included as an element of cost. In case the building is vacated before the end of its useful life, past claims for amortization must be adjusted to a reasonable depreciation basis. B. Cost After Building Amortization - After the initial cost of a building has been amortized, only the costs of service and maintenance may be charged. C. 75 Percent Rule - The amount charged for office space in a publicly-owned building may not exceed 75 percent of the lowest comparable rental for privately- owned space, unless there are special considerations justifying a greater charge. Use of this standard as an expedient interim measure, in the absence of actual cost data, enables you to claim costs that are not in excess of 75 percent of the lowest cost of privately-owned space without prior review or approval by CMS. D. Ratio of Charge To Rental Rates In Privately-Owned Space - Experience gained in analyzing the elements of rental rates in privately-owned space shows that approximately 75 percent of the rate represents the expenses of service, maintenance, and depreciation. The portion in excess of 75 percent of the rental rate of comparable privately-owned space generally represents taxes and profit on investment that would ordinarily accrue. Therefore, whenever a charge is made for space in a publicly-owned building that is not in excess of 75 percent of the lowest cost of comparable privately-owned space in the same or similar locality, it may be assumed that such charge is reasonably related to the expense of service, maintenance, and depreciation. The reasonable relationship of such charges to actual costs over a long-run period, however, would be subject to verification. When a monthly rental charge based on the cost of initial construction or purchase of publicly-owned buildings exceeds 75 percent of lowest comparable rental for privately-owned space, or when the cost of service and maintenance in lieu of rent in publicly-owned buildings exceeds 75 percent, obtain prior approval from CMS. E. Charge Based on Cost of Initial Construction or Purchase - When rental charges are based on costs of initial construction or purchase of a publicly-owned building, and such charges exceed 75 percent of the lowest comparable rent for privately-owned space, prior to acquisition or occupancy of the space, the SA submits justification for review and approval by CMS. F. Charges Based on Meeting Cost of Service and Maintenance - When the total charges for service and maintenance in a publicly-owned building exceed 75 percent of the lowest comparable rental for privately-owned space, the SA must submit, prior to its claim, the following data for review and approval by CMS: • Total useable floor space and the amount of space allocated to the State survey program unit; • Total costs of service and maintenance and the portion to be charged to CMS funds; • The elements of cost; and • The rental cost of comparable privately-owned space, with at least three statements of appraisals.