Library: Good Try, Wrong Deal

The public queasiness prompted by the proposal to sell the Los Angeles Central Library to a subsidiary of tobacco giant Philip Morris was easy to understand. Peddling a treasured public asset--the landmark library building--to a tobacco company, and seemingly at the expense of the city’s affordable housing program, was bound to evoke a viscerally negative response. The push to make the evolving and complex deal happen in a matter of weeks added to the unease.

Beyond the visceral, too many legal questions remained to accomplish this deal so quickly. The Los Angeles City Council, after rejecting the deal once and then agreeing at Mayor Richard Riordan’s urging to reconsider it, rejected it again Friday. Council members cited an unwillingness to move ahead on the sale without adequate time to fully satisfy all the questions raised by the arrangement. That was wise.

It could well be that the proposal to sell the library for $71 million was simply mishandled and poorly presented. The city would have leased the building from the company for $5 million a year for 20 years, then bought it back. The $5-million annual rent would have come from a Community Redevelopment Agency fund now used to build low-cost housing. Mayor Riordan, a strong advocate of the sale/lease-back proposal, which originated with the Tom Bradley Administration, later offered to set aside some of the proceeds for affordable housing. Philip Morris would have received a big federal tax credit because the library is a historic building, and the city would have received, after all was said and done, a one-time-only cash infusion of $11.5 million.

While it’s not unheard of for corporations to enter into sale/lease-back arrangements with government, this is a novel idea for the City of Los Angeles. Riordan, with his background in finance, was quite comfortable with it. But this proposal simply needed more time to cook. Given the object of the sale--the library--and the buyer--a tobacco subsidiary--it was just too far a reach for Los Angeles’ first major foray into the sale/lease-back business. The scheduled opening of the library early next month, coupled with federal tax law limitations, required advocates of the sale to try to rush it through. The City Council, wisely, was not willing to be rushed.

That’s not to say that sale/lease-back arrangements of public buildings are inherently wrong; they are not. In fact, the city may well find itself embarking upon similar deals in the future, and each arrangement ought to be judged on its own merits. However, the public needs to be fully informed about the details of any such deals, and feel comfortable with the benefits offered in exchange.

Given the city’s tight cash-flow situation, there is no doubt that greater use of creative financing is going to be necessary. Innovative ideas are to be encouraged, along with the full public discussion that is appropriate in any transaction involving public assets. Mayor Riordan was right to try to open the city up to the idea of more business-oriented financing; this was just not the deal with which to cut a new path.