Just when you think things can’t get worse in California comes the worst fiscal idea yet from Sacramento – selling off landmark state buildings to plug a fraction of this year’s budget gap, then turning around and renting the space at a premium from the state’s new landlords.
The lame duck Schwarzenegger administration is pushing this scheme to drum up some fast cash. The plan calls for selling 11 state properties comprising some 24 buildings, including the California Supreme Court and state offices in Los Angeles, Oakland, Santa Rosa and Sacramento. A private investment group called California First LLC is set to pay $2.3 billion for our state buildings which, after paying off the outstanding bonds used to construct the buildings, would net the state just $1.2 billion.
But selling these buildings will actually end up costing California’s taxpayers $1.4 billion over the next 35 years, according to the respected and non-partisan Legislative Analysts Office. That’s because, after selling the properties, the state would then have to lease them back to house its workers – at nearly double the current cost of repaying the construction loans. This deal makes such little sense that the report done by the usually taciturn Legislative Analysts Office called it “poor fiscal policy.”
As the current Assessor-Recorder of San Francisco with a background in appraisal, I understand why the private investors are so anxious to ink this deal. They are getting both premium properties priced at the bottom of the real estate market and a built in cash flow from their state governments tenants. They will quickly recoup their investment through the rents alone. That doesn’t even account for the hundreds of millions of dollars in appreciation likely over the next decades.
The investors win. But the taxpayers are faced with a guaranteed loss.
Who would propose such a scheme? Certainly no person with even a basic understanding of economics or investment would make such a deal.
In fact it’s deal only politicians looking for a quick fix could support. Which is why Californians are lucky that concerned citizens have taken the case to court trying to block this scheme. And, they have won a hard fought, but still temporary, injunction against the sale.
These public advocates may have won a legal battle. But the fact that the scheme was proposed, advanced so far, and is still alive shows just how far Sacramento politicians will go to avoid making hard choices.
Our state is virtually bankrupt. But bankrupt ideas are not the answer.
Let’s keep up the pressure so California can keep these valuable assets. And next time Sacramento tries to make this kind of political calculation, lets make sure they pick up a calculator first. These numbers don’t add up.