Should State Governments Get Into the Storage Business? Public Reaction to Idaho’s New Self Storage Venture is Mixed

Should state governments be running commercial real estate ventures? The subject is controversial, but a recent decision by the Idaho Lands Department to go into the self storage business is stirring up interest. Idaho’s Department of Lands purchased Affordable Self Storage of Boise two months ago and is running it as a tax-exempt business.  

Although the sign on the outside of the business still reads, “Affordable Self Storage,” Idaho’s Secretary of State lists the name of the business owner for the storage property as “State Board of Land Commissioners as trustee for the Idaho Endowments,” according to the Boise Guardian. The Guardian printed an editorial on Tuesday criticizing the state’s decision and comparing Idaho’s government to that of communist China, Vietnam, and Cuba, as well as to some autocratic governments in the Middle East.

Why did Idaho decide to invest in storage? Like other real estate investors, the state recognized that self storage is a good investment -- one of the few good investments available in real estate, these days. George Bacon, Idaho’s Land Department director, said in The Idaho Statesman on Tuesday that the Land Board is required by Idaho’s state constitution to use state endowment lands to produce as much income as it can for public schools and other beneficiaries of the state endowment. Affordable Self Storage, with its 80 percent occupancy rates, offered the state the potential to earn more income than any other option the Land Board was considering.

Idaho Lands Department business analyst Jane Wright said in the Statesman that the state had considered other types of businesses, but storage facilities were considered the least risky and most stable of the possible investments. “Our priorities for new assets are to increase net cash flow, obtain all purpose legal access, diversify the asset type and reduce management costs,” she said. “Our No. 1 priority is to increase net cash flow. This property, based on our financial analysis, did that.”

The decision to buy the self storage site was made by the five members of the Idaho Land Board, who voted unanimously on August 17. The Land Board consists of Governor “Butch” Otter, Attorney General Lawrence Wasden, Controller Donna Jones, Secretary of State Ben Ysursa, and chief of public schools Tom Luna.

Like other business owners, the state had to get a business license. The Department of Land got its license from the Idaho Secretary of State on August 31.

On Wednesday, the Boise Guardian printed reader reactions to the state’s new business venture, including Governor Otter’s reaction to the Guardian editorial criticizing the decision. Otter pointed out, “The State of Idaho does in fact own many other commercial properties and collects rent on them. We collect rent both on office space and we also collect rent on storage space. So collecting commercial rent on space is not unique.”

Many Boise residents disagreed with the state’s decision to run any business, however. Several were not previously aware that the state had been running commercial office buildings and parking lots. The Guardian’s publisher, David Frazier, told The Idaho Statesman that he was concerned about the money that would be taken away from Boise schools and Ada County. Affordable Self Storage paid taxes when it was privately owned, but as a state-owned enterprise, it is now tax-exempt.

Jake Smith’s firm, Republic Storage, owns 17 self storage facilities with a total of about 13,000 units. “It’s damn difficult to do business when your competitor doesn’t pay income or property taxes,” Smith commented in the Guardian on Tuesday.

Affordable Self Storage tenant Ron Gardner told Idaho’s Fox 12 that he was surprised to learn that the facility was owned by the state. “There’s another storage facility another block from here, and I looked at both places when I was shopping. They’re very similar. Probably, had I known one was state owned, I probably would have gone with the private business,” Gardner said.

Sources used:

Associated Press. “Hey governor, where should I park my RV?” KHQ TV. Oct. 21, 2010.

“Controversy over a state run storage facility.” KTRV Fox 12. Oct. 21, 2010.

Miller, John. “Latest land buy puts Idaho in the storage business.” The Idaho Statesman. Oct. 21, 2010.

“State-owned private business venture draws split decision from GUARDIAN readers.” The Boise Guardian. Oct. 20, 2010.

“State owns tax-exempt commercial storage, competes with private business.” The Boise Guardian. Oct. 19, 2010.