L.A. Weighs Sale of Central Library to Philip Morris : Finances: Lease-back deal with tobacco firm would give cash boost to city. Anti-smoking activists decry plan.

Los Angeles, which recently became the first major city in the nation to ban smoking in its restaurants, is considering selling part of the historic Central Library in Downtown to a subsidiary of tobacco giant Philip Morris Cos. in a deal that would give the financially strapped city a source of instant cash.

Under a complex financing pact still being negotiated, the city would sell the landmark Goodhue Building, the pyramid-roofed repository of more than 2 million books, to Philip Morris for $70 million, then lease it back for $5 million a year over the next two decades.

The idea of selling portions of the library to a major corporation has been in the works for more than a decade, but it was not until this month that the Philip Morris Capital Co., a subsidiary of the tobacco empire, emerged as the lead contender.

Proponents say the deal would save taxpayers an estimated $15 million in the long run by providing the city with money at a rate lower than it would cost to borrow it on the open market. In turn, Philip Morris would receive millions of dollars in federal tax credits.

City officials promised that Philip Morris would have no voice in the operation of the library and that the city would have the option of buying back the Goodhue Building at a pre-negotiated price after 20 years.

“It’s not going to be the Philip Morris Central Library,” said Marc Littman, spokesman for the city Community Redevelopment Agency, which is putting the deal together.

“This transaction will be completely invisible to the public,” said Peirre Lorenger, the CRA’s deputy administrator for finance, audit and accounting.

But anti-smoking activists were outraged at the notion that the beloved Downtown library, set to reopen Oct. 3 after it was ravaged in 1986 by a $22-million arson fire, would end up in the hands of the nation’s leading cigarette producer. At least one protest meeting was being planned by library supporters.

“The library is like motherhood and apple pie. We are about to give a whole lot of public money to a tobacco manufacturer,” one City Hall critic said. “The idea of taking my kids to a library owned by Philip Morris makes me puke.”

“The American Cancer Society is wary and suspicious of any seemingly altruistic move made by a company which is ruthless in marketing and selling a cancer-causing product to the public,” said Dr. Raymond Melrose, a spokesman for the Cancer Society in Los Angeles.

Anti-smoking groups worried that the arrangement might increase the local political clout of Philip Morris, which recently donated $77,662 to a failed campaign to overturn the city’s restaurant smoking ban. The company’s subsidiaries--the Miller Brewing Co. and Kraft General Foods--also contributed, giving $10,000 each, public records show.

Ownership of 40% of the historic library would give Philip Morris “a certain influence with the city, and they will use that influence,” said Kevin Goebel, manager of legislative programs for the group Americans for Nonsmokers’ Rights. He described his initial reaction to the proposal as “one of horror.”

But Mayor Richard Riordan and other city leaders said it appears to them that Philip Morris is doing Los Angeles a favor.

Even Councilwoman Ruth Galanter, an ardent supporter of the city’s smoking ban, said of Philip Morris: “I’d rather see them make their money in real estate than polluting people’s lungs.”

Philip Morris, whose most popular cigarette is Marlboro, earns 43% of its profits from tobacco sales. It was ranked first among the Forbes Profits 500 companies last year with net profits of $5.9 billion on revenues of $15.2 billion. It was the eighth-largest employer of City Hall lobbyists, spending $18,000 on lobbying during the first three months this year, according to the latest reports.

“It’s a good investment and from a business point of view, we think we’re doing the right thing,” said Darienne Dennis, external communications manager for Philip Morris Cos. She said such a deal is “very common in the field of financial investment” and a good business decision.

Members of the Library Commission were well aware that selling the landmark to a tobacco firm would raise hackles. But commission President Douglas R. Ring, an attorney and prominent City Hall lobbyist, said members sought not to pass judgment on the buyer but to negotiate the best deal for a city that is short on funds.

“We were not going to make moral judgments about whether the (Philip Morris subsidiary) was somehow tainted by the tobacco interest of its parent company,” he said. “In the final analysis, there is no city policy that says the city should not do business with a company that also sells tobacco.”

But the deal is also stirring up dust in other circles. The $5-million yearly lease would be paid with funds currently spent on building low-cost housing in Los Angeles, officials said, meaning a city already notoriously short on affordable housing will grow shorter. Officials said $5 million a year would build about 50 low-cost housing units.

“The city of Los Angeles has the worst housing crisis in the country, the worst affordability crisis. We are considered the homeless capital of the nation. Homelessness will only increase,” said Jan Breidenbach, executive director of the Southern California Assn. of Nonprofit Housing.

The plan must first pass the muster of two City Council committees, the full council and Riordan. Although it has not been formally presented at City Hall, several city leaders were in favor.

As the terms stood Thursday, the company would pay the city $70 million for the building, $10 million of that would be used to pay off a loan the CRA received from the Port Authority, and $14 million would be put in escrow and invested in security accounts to guarantee that the city has the money to buy the building back in 20 to 30 years, if it chooses.

That would leave the city $46 million in cash, more than enough to wipe out this year’s projected $40-million budget shortfall.

The full council is set to review the plan Aug. 31 and time is of the essence. According to federal law, Philip Morris cannot take advantage of federal tax credits unless the sale is completed before the library reopens after an elaborate, multimillion-dollar renovation. The tax credits were made available by Congress as incentives for firms to invest in the rehabilitation of historic buildings. That law changed in 1986, but the Central Library was grandfathered in.

Riordan voiced his support Thursday for the proposed transaction as a sign of the times. “At a time when the city is facing a budget crisis we must re-engineer government to develop new and different ways to find sources of revenue for the city. The library lease-buyback is a good example of using city assets to leverage more dollars. During my Administration, we will be reassessing all of the city’s assets to utilize them to their maximum financial potential,” Riordan said.

Councilman Mark Ridley-Thomas said he was disinclined to dismiss Philip Morris simply because it sells tobacco. “Why shouldn’t it be considered? A ban on smoking does not necessarily preclude it from competing. This is not an outlawed entity.”

Councilwoman Laura Chick said Thursday the deal sounds like a good way to bring money to a depleted general fund. “I’m seeing blue uniformed police officers on the streets of my neighborhoods,” she said. “I don’t see visual images of lit cigarettes.”

But Councilman Nate Holden called the proposed sale of the Central Library terrible, expressing disdain at the idea of a private entity owning a public library.

“Philip Morris is going to own the Central Library. Can you imagine that?” he said. “We won’t ever own it again. Eventually, we’ll be paying admission to the library. The next thing they’ll sell is City Hall.”

An aide said Councilwoman Rita Walters plans to look closely at the deal not only because of Philip Morris’ tobacco interests but its apparent ties to South Africa.

It is not unusual for the city to refuse to do business with companies because of their business practices. The city refuses to award contracts or buy goods from companies doing business in South Africa or participating in the Arab boycott of Israel. City employees also are prohibited from traveling to Colorado because voters approved a referendum last year repealing gay rights ordinances.

Times staff writer Amy Wallace contributed to this story.