This Land is Your Land

 

Over the decades, our state government has amassed a vast real estate empire that today encompasses 8 percent of Connecticut’s 3.2 million acres. All of us who are residents of the state are shareholders in this extraordinarily varied and valuable 258,000-acre portfolio.

The lion’s share of this empire, some 231,000 acres, can be found in state parks and forests, managed by the Department of Energy and Environmental Protection. Another 8,900 acres is under the Department of Transportation’s control and includes six airports, two 1,000-foot piers, various highway and rail rights of way, 3,875 bridges and two ferries, as well as 98 large and small parcels scattered here and there, where big orange trucks park and road salt and sand are stored for winter.

Our institutions of higher learning sit atop another 5,800 acres, and we house prisoners in facilities built on 3,000 acres. The remainder is scattered about the state under the control of various agencies such as the departments of Children and Families, Criminal Justice, Motor Vehicles, Public Safety, Public Works, Veterans’ Affairs, Education, Economic Development, Mental Health, the Office of Policy and Management and the judiciary. It also includes various armories around the state, two Connecticut Horse Guard stables, the grounds beneath our gold-domed Capitol, and one 575-acre farm.

Real estate—including all those acres of land and about 3,700 structures encompassing 61 million square feet—is the state’s most impressive tangible asset, but it carries great intangible value as well. In difficult budgetary times, such as right now, talk of selling off some of these assets gets louder, but before we think of selling, how much is it all worth? That’s not so easy to determine.

The Comptroller’s Office values our government buildings at $3.7 billion based on a formula that adjusts the original acquisition cost to account for accumulated depreciation over the years. As for the land beneath the buildings and elsewhere, the comptroller says it’s worth $1.622 billion, which works out to almost $6,300 an acre on average. That number reflects the original purchase prices and is not adjusted for inflation. So, for example, the original five acres of salt marsh acquired in 1913 from the town of Westport that formed the beginnings of Sherwood Island State Park are still carried on the books at the original purchase price.

Unlike the investment portfolio the state treasurer manages, whose value fluctuates with the markets for stocks and bonds, the value of our real-estate investments is not tied to changing market conditions. Using Generally Accepted Accounting Principles, the comptroller maintains steady asset figures that allow more manageable comparisons year to year without factoring in the ups and downs of the market.

That method just doesn’t add up for Pace University business professor John Alan James, a 30-year Greenwich resident and former director of International Business and Economic Development during Gov. Ella Grasso’s administration. “If you check with some of the major auditing firms, they will tell you that the way that governments—federal, state and municipal—carry their undeveloped land belongings is mysterious at best,” he says. “How much do you think the right of way for I-84 or I-91 should be valued, or the Merritt Parkway, traversing some of the highest priced home real estate in the world?

“The answer is that they don’t even have any books for this type of asset,” he says. “It’s archaic. They’ve resisted every major attempt to account for it properly.”

This lack of accurate accounting, James says, has implications in financial markets, especially for a state with huge pension obligations to its public workforce and one of the nation’s highest per-capita ratios of bonded indebtedness. “You’re showing all the liabilities, but you’re not doing a good job of evaluating your assets, which means that bonding agents aren’t getting a good enough picture,” he says.
But just how do you determine what these unique properties around the state are worth, especially in a sometimes hard-to-figure real estate market?

One measure is recent acquisitions. How about the 17 acres on the Connecticut River in Haddam that the General Assembly agreed to swap with a developer for 87 acres elsewhere in a controversial deal that roiled the Capitol last spring? In 2003, the state had paid $1.3 million for that property, or almost $76,500 an acre.

But is it fair to extrapolate that the two miles of waterfront property at Hammonasset Beach State Park or the 238-acre Sherwood Island State Park are similarly worth $76,500 an acre? Given their locations, property within those parks is probably worth far more than that.
Another measure can be found in the state’s surplus property sales, which were accelerated in Gov. M. Jodi Rell’s final year in office to help close the budget gap. State asset sales, including real estate, vehicles and equipment, were expected to generate $45 million in fiscal year 2011.

Yet, these surplus real estate sales only hint at what our portfolio is worth. For example, there is the 185-acre Fairfield Hills Hospital property and its 20 buildings, which were sold to Newtown for $5 million in 2004. But in 2009, Preston was able to pick up 390 acres and most of the buildings at the former Norwich Hospital on the banks of the Thames River, along with their significant clean-up costs, for a nominal $10. Deals like that muddy the waters considerably.   

“They’re really the outliers,” explains Patrick O’Brien, of the Office of Policy and Management’s Bureau of Assets Management. “They’re large, institutional structures set on huge pieces of land. They’re unique, once-in-a-lifetime kinds of things. We’re not going to be building any more 800-acre mental hospitals.”

More representative sales of state-owned real estate are what he terms “mundane” properties, typically owned by the state Department of Transportation and acquired to make way for a road project. “It’s a single-family house that was acquired by the Department of Transportation for a road project, and either the road project never happened or it’s done and they no longer need this house and they’re getting rid of it,” O’Brien says. Examples he cites are a house in Bloomfield that recently sold for $50,000, and one in Plainville that went for $105,000. Eight acres in Bloomfield recently sold for $100,000, or $12,500 an acre.

Since 2007 the state on average has sold about $3.3 million in surplus real property annually. “It’s important for people to understand that whether it’s surplus real estate or Administrative Services selling cars or equipment, it’s an ongoing process,” O’Brien says. “It’s something we do all the time. Agencies, especially DOT, are constantly identifying things they don’t need. Or we’ll get a query from the public saying, ‘Hey, I know this is state-owned and I’m interested in buying it.’ That will start the process. It’s not something we do only when times get bad.”

Once a property is declared surplus, it takes time—sometimes several years—for the process to play out. First it must be offered to other state agencies. If there are no takers, the town in which the property lies gets a shot at it. If the town is not interested, public comment is solicited as to whether the property should be sold before the state can put it on the market.

“Once they hit the market, they’re competing with everybody else out there who’s selling their house or a piece of land,” O’Brien says. “We enter that normal flow of transactional real estate. The mundane, run-of-the-mill properties, they’re going to bring the prices that everybody else’s house, half-acre or quarter-acre of land is going to bring. There’s nothing special about a house owned by the state that’s going to bring a higher price.”
 

Even if we could come to some sense of what all that land is worth, is it really reasonable to think about selling it to make up for short-term budget shortfalls, or even our long-term obligations on bonds and pensions that run into tens of billions? In fact, selling off real-property assets, as some governments have discovered, isn’t always the best idea. While there is a nice upfront chunk of money for desperately depleted coffers, the long-term consequences are troubling.

In recent years, for example, Chicago sold its parking meters, Arizona sold its Capitol building and Indiana sold a toll road—all to make ends meet. In each case the governments failed to realize the full potential of the asset sales in the short term, and in the long term taxpayers will be paying more to use them than they would have if they had remained as public properties.

Professor James advocates a different approach, noting that once you sell a state asset, it’s gone forever. Long-term leases, on the other hand, make more sense because the state retains the asset and gains a steady income. For example, the DOT has leased rest stops along the Wilbur Cross and Merritt parkways, and interstates 95 and 395, to a partnership that will invest nearly $180 million over five years to upgrade the plazas and pay the state about $7 million in royalties annually for 35 years. Service companies lease space at our airports, and a stevedoring company leases a pier in New London.

Probably the state’s single most valuable asset, the 2,358-acre Bradley International Airport, until recently was one of the few airports in the nation run by a state department of transportation. That ended with this year’s legislative session, when lawmakers agreed to establish a quasi-public Connecticut Airport Authority to operate Bradley and five regional airports. But the DOT still owns it.

Even so, with the fiscal problems the state has been facing, the idea of leasing or selling it has come up on several occasions, says state Sen. L. Scott Franz, the Greenwich Republican and former chairman of the airport’s advisory board. “It’s a Republican idea, but one that I tried to quell because given the marketplace, it would not have been a good time to sell Bradley, even if you get over the hurdle of parting with a state asset that big.”

He says that in 2008, before a deal to sell Chicago’s Midway Airport for $2.5 billion fell through, people were beginning to think about what Bradley might bring. “When leadership contacted me and said, ‘Put together a price for Bradley Airport,’ we did go through the exercise,” he says. “If you looked at the number of passengers going through Chicago Midway about the time of the proposed sale, about 13.5 million people went through annually. At Bradley it was about 2.9 or 3 million. So if you do the rough math on that, that would bring the market value of Bradley down to about $500 million. But that was at the absolute peak of the market for airports.” He says that in the current market that figure is probably closer to $350 million.

If you put that figure against the $3.7 billion deficit forecast for the 2012-13 budget, “it’s less than 10 percent. And you only get to sell it once,” Franz notes. “I don’t think you’ll see any interest in airport privatization for at least another 10 years. I don’t think there’d be the political will to sell it.”
 

A Farm in Lebanon
Off Route 2 on the Lebanon-Colchester town line are 575 acres of working farmland called the Lebanon Agricultural Reserve. The parcel has a 70-acre lake and two brooks, and a river runs through it. The land is a rarity under the state’s Farmland Preservation Program in that it’s the only farm state taxpayers own outright. Usually, the state purchases just the development rights, allowing the farm to remain in the hands of the people who own it.

In this case, the developer who owned it went bankrupt during the real estate collapse of the late 1980s and early ’90s. When the state Department of Environmental Protection was unable to get the Bond Commission to provide funding to purchase it for its park system, the mortgage holder foreclosed on the property. Enter the Department of Agriculture, which was able to work out a deal with the bank to preserve it as farmland. Today, the agriculture department leases the property to a couple of farmers and works with the Department of Energy and Environmental Protection to manage hunting and fishing rights.   
 

State parks & forests
Since its settlement by Europeans, Connecticut has been essentially deforested—twice. Early colonists cleared vast swaths to make way for farming. Decades later, much of the state’s forests regrew as people left farms to work in the mills of the early Industrial Revolution. It wasn’t long, however, before those lands were deforested all over again, this time to fuel factories, heat homes, build ships and anchor the rails of a burgeoning transportation system.

These days we like our trees upright, alive, and usually in large groups. Enlightened by federal conservation efforts inspired by President Theodore Roosevelt, the state began what has become more than a century-long process to acquire and preserve our natural heritage, an effort that continues today despite our budget woes.  

It all started with the state’s purchase in 1903 of 900 acres spread over Portland, East Hampton and Glastonbury that became Meshomasic State Forest, the first state forest in New England. Westport’s Sherwood Island State Park, the first state park, came as a result of the State Park Commission’s first act, the purchase of five acres from Westport in 1913. It took another 24 years to acquire all 238 acres.

Many state parks and forests began as private property but were deeded to the state with use restrictions. Adjoining lands often were added. So regardless of how desperate we become to pay our bills, it’s not likely we’d ever be able to start selling off parks and forests for any short-term fiscal fix. No sane politician would ever suggest such a thing. And that puts the majority of our real estate portfolio—130 parks and forest—off limits, for its value is simply immeasurable.
 

University of Connecticut
Beginning with a bequest of 170 acres and $5,000 from Charles and Augustus Storrs in 1880 to encourage the state to create a school to teach boys how to farm, the Storrs Agricultural School grew to become the University of Connecticut. That initial acreage also has grown, now covering about 4,300 acres spread among the main campus in Storrs and five regional campuses, the Law School in Hartford, the Health Center in Farmington and various cooperative extension sites around the state. It also includes forests and fields that the College of Agriculture uses for student course work and research.

Any undeveloped land in the UConn portfolio gives the school “much-needed flexibility as we grow and evolve,” says UConn spokesman Michael Kirk. “UConn has been around for 130 years and when it comes to land use, we need to think very long-term. It’s not just about our needs right now or over the next few years, it’s about what our land-use needs will be over the next century or two.”

He cites the example of the recently approved $172.5 million technology park that is to be located on the Storrs campus. As envisioned, the park will be home to laboratories, incubator space for emerging businesses and other facilities in multiple buildings, many of which could be privately funded.
 

The State Capitol
Our landmark State Capitol building sits on eight acres overlooking 41-acre Bushnell Park in downtown Hartford. It was built between 1871 and 1879 for about $2.5 million, $58 million in today’s dollars after adjusting for inflation. To replace it today is estimated to cost about $200 million.

What such a landmark might bring in Hartford’s depressed commercial real estate market with its 30 percent vacancy rate is anyone’s guess. Two downtown buildings totaling 100,000 square feet recently sold for $1 million, a steep discount from the $3.4 million assessed value. The 38-story, 850,000-square-foot CityPlace office tower went on the market in June, and while the asking price has not been made public, city records place the market value at $83 million. Still, finding comparable buildings of 160,000 square feet with gold domes on which to base an estimate is nearly impossible. And what would you use the historic building for?

It is unlikely that Connecticut would follow the example of Arizona, which got investors to come up with $735 million to cover a budget shortfall by selling government buildings around its state capitol. Of course, the problem with that was that Arizona still needed the office space, so it leased back the space. Over time, it will end up costing that state’s taxpayers more than what they got for the buildings.
 

The Merritt Parkway
When the Merritt Parkway, one of only a few highways listed on the National Register of Historic Places, was first conceived, adjoining landowners insisted that it be integrated with the surrounding landscape as a thing of beauty rather than miles of land-scarring asphalt.
The result is an oddity among the state’s highways. To integrate the highway with its surroundings meant carving out a 300-foot right of way through what remains some of the most expensive property in the country. (Most highway rights of way in Connecticut are about 100 feet wide.) Any thoughts of selling off any of that excess to adjoining landowners never get anywhere.

Meanwhile, the DOT has been conducting a forensic examination of decades-old property records at the state and local level to determine the number of hidden excess properties it owns adjacent to its 3,700 miles of highways and 235 miles of commuter rail lines. So far, with 127 of the state’s 169 cities and towns accounted for, some 3,200 such properties have been identified. Most are small chunks of land left over after a road is built that are of little value to anyone other than an abutting owner. Still, in aggregate they might bring millions to state coffers.
 

State Port Complex
Unlike the ports in New Haven and Bridgeport, which are privately owned and operated, New London’s State Port Complex with its 35 waterfront acres and two 1,000-foot piers is owned by us taxpayers. Under the management of the DOT’s Bureau of Aviation and Ports, the Admiral Harold E. Shear State Pier is leased to Logistec, a stevedoring company that moves commercial cargo in and out. The other pier, the Central Vermont Railroad Pier, built in 1876 and added to the Register of National Historic Places in 2005, is partially leased to the Thames River Seafood Cooperative, which provides maritime services to commercial shell fishermen and lobstermen.

The leases, which expire simultaneously in January 2013, bring in a set fee for the land along with an additional fee based on the value of cargo moving through the port. Combined, they brought the state an average of $435,000 over two years before dipping to $281,000 in 2009-10. Activity at the complex picked up last year, bringing in $393,000.

Could privatizing the port like those in New Haven and Bridgeport bring a better deal for the state? Maybe in the short term, for as Charles Beck, the DOT’s maritime transportation manager, notes, “Right there at the east entrance to Long Island Sound, New London is very well-positioned for bringing commercial products in. It’s truly multimodal because you’ve got the interstate only yards away and rail that runs all the way north to Vermont and into Canada.”

That would seem to make the complex an attractive asset, but outright sale has not been considered. Beck says the DOT is reviewing a study it commissioned to recommend ways to make the facility more attractive, for example, deepening the port to 42 feet from 35 feet to accommodate larger vessels.
 

This Land is Your Land

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