Over the objection of the state’s top two fiscal officials, the Schwarzenegger administration on Monday pushed through a controversial plan to sell state properties to raise money for cash-strapped California.
The sale of 24 buildings at 11 locations, including the Ronald Reagan State Building in downtown Los Angeles, is expected to generate $1.2 billion to help shrink the budget deficit. The state is obligated to lease back the properties for at least 20 years. A recent report from the nonpartisan Legislative Analyst’s Office said the costs involved in the transaction over the long run will be roughly equivalent to borrowing at 10% interest for 35 years — far more than the state pays on its bonds.
“This is another in a long line of budget gimmicks that simply pushes our fiscal challenges down the road,” Jim Lombard, chief administrative officer for Controller John Chiang, said at the hearing of the state Public Works Board.
In a statement, state Treasurer Bill Lockyer called it “poor fiscal policy and bad for taxpayers.”
But the two Democrats were outvoted 3 to 2 as the sale cleared its final major hurdle. All three ayes came from appointees of Gov. Arnold Schwarzenegger.
State legislators and Schwarzenegger approved the sale in the summer of 2009, and the properties were put on the market earlier this year. The legislative analyst’s report said that over the next 35 years, the sale will end up costing the state $1.4 billion more than keeping the buildings would have.
“Taxpayers will be burdened with decades of lease payments that far exceed not only the cost of today’s debt service on the buildings, but also the highest interest payments the state would incur if it borrowed a similar amount of money,” Lockyer said.
The governor’s Department of General Services insists the sale — at a price far exceeding initial estimates — is financially sound, saving the state $2 million over 20 years. Plus, proponents say, the $1.2 billion raised this year will obviate the need for higher taxes or deeper cuts in state programs to balance the state budget.
The state’s new landlord will be a private consortium of investors called California First, LLC. The group is a partnership of a Texas real estate company and a private-equity firm in Irvine.
Richard Mayo, a former real estate aide to former Gov. Pete Wilson and managing partner of one of the investment firms, hailed the deal’s completion Monday.
“We’re very happy we came out on top,” Mayo said of the bidding process. “We think it’s a good deal, obviously for us but also for the state as well.”