Schwarzenegger's plan to sell state property has high cost

The Civic Center Plaza in San Francisco, California.
The Civic Center Plaza in San Francisco, California.
Justin Sullivan/Getty Images

SACRAMENTO — Gov. Arnold Schwarzenegger's plan to sell two dozen state office buildings would cost California taxpayers billions of dollars in rent in the years ahead, far more than the state stands to make from the sale, according to financial documents analyzed by The Associated Press.

If all buildings sell at the asking price, administration officials projected the state would net about $660 million after roughly $1.1 billion in construction bonds are paid off.

The state would then rent space in the buildings from the new owners for 20 years. Over that period, it would pay $5.2 billion in rent, according to documents prepared for potential buyers.

The costs associated with selling off government properties are detailed in investment packets created by the company the state hired to market the buildings, CB Richard Ellis. The Associated Press requested and obtained the documents through the state, then compiled and analyzed the financial information supplied for each building.

Under terms of the proposed leases, the state would have to pay a monthly fee for nearly 3,500 parking spaces it now controls, adding $138 million to the state's costs over the next two decades. California taxpayers may even cover increases in property tax assessments once the buildings are sold.

The plan to sell state office buildings was promoted by Schwarzenegger during last summer's drawn-out negotiations to close California's budget deficit. The governor sold the idea as a moneymaker for the state.

State Assemblyman Jim Silva was one of just three of California's 120 lawmakers who voted against the proposal. He and other critics questioned whether it was smart to be selling so much state property at a time when commercial real estate prices are in a slump, then saddle taxpayers with rent costs for decades to come.

Properties up for sale include the Ronald Reagan state building in Los Angeles, San Francisco Civic Center, which houses the state Supreme Court, and several buildings in downtown Sacramento.

"California has to make sure that the taxpayers are treated fairly, and selling our buildings and leasing them back would not be in the best interest of our taxpayers," said Silva, a Republican from Huntington Beach.

Estimates for the first year after the proposed sales are completed illustrate the increased cost to the state.

The Schwarzenegger administration projected the state will spend $192 million in bond payments, maintenance and repairs for its buildings in the fiscal year that begins in July. By comparison, CB Richard Ellis estimated the state would pay $238 million in rent and utilities alone during its first year as a renter — a $46 million increase in costs to state taxpayers.

Bids from potential buyers were due Wednesday.

Jerry Epstein, former president of the Los Angeles State Building Authority, reviewed the financial documents prepared for the Reagan office building and concluded that taxpayers will be paying more under Schwarzenegger's sell-off plan.

The state has been paying about 4 percent interest on the building's bonds but the new owners would make a 7 percent return, Epstein said.

"It is so stupid," Epstein said. "Something is not right. It really has a stench to it."

Jeffery Young, a department spokesman, said the governor feels strongly that California should not be in the business of managing properties. By selling its government buildings, California will be relieved of the financial burden of maintaining them and avoid unexpected costs.

"This is an unprecedented situation," he said, referring to California's budget deficit. "You've got to do everything you can to raise cash. Where is it written that we should be in the real estate business?"

The $660 million in one-time profit the state hopes to receive from the sale amounts to 3.3 percent of the state's budget deficit, estimated at $20 billion.

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