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State efforts to cut leased space hit difficulties

Michigan's plans to save money by cutting use of leased office space run into difficulties
Posted on June 16, 2014 at 6:52 a.m.

LANSING, Mich. (AP) — Plans to renovate two large state-owned office buildings in Lansing and move employees from leased space are costing more than expected and running into other difficulties.

Work on Constitution Hall and the Stevens T. Mason Building is taking place at a cost of $32.4 million, more than double the original $14.8 million estimate, the Detroit Free Press reported (http://on.freep.com/1n3ihVs ) Monday. An aim was to move more than 1,000 employees from leased space to cut costs.

Meanwhile, the newspaper reported that nearly all employees who are moving into or will move into Constitution Hall are coming from another state-owned building, not leased space. Kurt Weiss, a spokesman for the Department of Technology, Management and Budget, said that it also isn’t clear whether any leases will be terminated to fill the expanded Mason Building.

“The lease savings that we thought we were going to get ... didn’t materialize,” Weiss said.

Pushback on the plan to curb the use of leased office space — from landlords who lease space to state government and department directors who liked current locations of their workers — is behind the difficulties.

“The bigger issue was internal — directors and other folks within state government saying, ‘I want this,‘ and ‘I want that,‘” he said.

The cost increases for the renovation are related to the expanded scope of work, not cost over-runs, Weiss said. The Constitution Hall and Mason Building project was part of a statewide effort to reduce lease costs and consolidate employees in state-owned buildings.

Gregory McClelland, a Lansing real estate attorney, said he’s not surprised at the difficulties the state experienced, in terms of unforeseen work renovating buildings and in relocating tenants.

“It was surely an ambitious plan,” McClelland said. “They probably bit off more than they could chew.” The plan would have been easy to implement “if you didn’t have the political piece in there, and if you didn’t have humans involved.”

Since 2011, the state has reduced its more than 500 leases by 63, saving about $14.5 million in annual rent, Weiss said. But relatively few major leases have been terminated in Lansing, where most state employees work, and none of those have been related to the Constitution Hall and Mason Building project.

Information from: Detroit Free Press, http://www.freep.com


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