Garage sale budgeting
State and local governments need money to get through the economic slump, so they’re turning to, well, garage sales. The city of Los Angeles is doing so literally, negotiating the long-term lease of parking garages to private operators. And California officials reported Oct. 11 that they had reached a deal to sell the Ronald Reagan State Building and the Junipero Serra Building in downtown Los Angeles, plus nine other buildings in four other cities, to a private real estate partnership. The idea in both cases is to raise enough cash right now to take care of current budget woes.
It’s fine to have a garage sale to get rid of old junk and perhaps make a few extra bucks for a nice dinner. But what if a homeowner loses his job and starts selling off his appliances, his furniture and his clothes each month just to pull in money for the mortgage? The word “unsustainable” doesn’t begin to describe it. At some point, all the household items will be sold off, the cash will run out, the mortgage will go unpaid and the bank will foreclose.
After comparing what the state will have to pay to lease back its office space for 20 years compared with what it will save from not having to deal with building upkeep and other costs of ownership, state officials figure they will come out ahead by about $2 million over two decades. But the real benefit of the deal — and the potential problem with it — is the $1.2 billion the state will get up front from the buyers to solve this year’s budget problem (plus $1.1 billion to satisfy a $1.1-billion bond obligation on the assets).
The benefit is obvious. The state can avoid making $1.2 billion in cuts to education, public safety, social services or any other crucial programs. But the problem should be just as clear, as it is with the homeowner who sells his furniture. Those buildings won’t be around to sell again next year, when the state must confront another tight budget.
The city is still far from completing its deal to sell the right to operate several parking garages, but it is already counting on the proceeds to balance the current fiscal year’s budget. Finalizing the concession will be great for this year, but what will be left to sell or rent out next year if the budget picture is as bad as most expect it to be?
One-time sales or leases may be the best of bad options for dealing with a once-a-century economic crisis like the current one. But the city and state were grappling with continuing structural deficits even before the recession, and they shouldn’t get into the habit of selling off assets — especially revenue-producing assets — when the budget gets tight. Relying on garage sales to make ends meet is no more sustainable for state and local governments than it is for a homeowner trying to pay the mortgage.
