The state Public Works Board voted 3-2 Monday to retire the bonds on several state-owned office buildings, paving the way for California to sell property as a way to raise cash quickly in a deal that analysts warn could cost taxpayers in the long run.
The vote allows a deal brokered by Gov. Arnold Schwarzenegger's administration to move forward. It will give the state between $1.2 billion and $1.3 billion to plug a budget deficit in the current fiscal year.
Yet a report from the state's nonpartisan legislative analyst said last week that the sale will end up costing California taxpayers $1.4 billion over 35 years. It said the state will pay an effective interest rate of 10.2 percent to lease back the parcels, which include 24 separate buildings, from the new owner - about double what the state pays on existing bonds used to build its offices.
Representatives for state Treasurer Bill Lockyer and Controller John Chiang voted against the deal Monday, while three Schwarzenegger administration officials voted in favor.
Lockyer told the board that he knows the governor and state Legislature, which approved the sale, faced difficult choices, but he said getting rid of such valuable property is "poor fiscal policy and bad for taxpayers."
Many of the buildings were scheduled to be paid off in just a few years.
"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.
He and several speakers at the hearing questioned whether state officials thoroughly weighed all their options. One proposal, for example, called for the state to sell the buildings but retain ownership of the land, allowing the parcels to stay in the public trust until after the real estate market has rebounded.
"Once the buildings are sold, they're gone forever," said Rocky Delgadillo, the former Los Angeles city attorney and now a lawyer with Goodwin Procter, one of the firms proposing the so-called public option. "They're gone for this generation and gone for future generations. So why the rush?"
Delgadillo and other speakers urged the board to postpone its decision until incoming Gov.-elect Jerry Brown, a Democrat, can review the sale of state assets. They include the Ronald Reagan building in Los Angeles, the civic center and Public Utilities Commission buildings in San Francisco, and offices in downtown Sacramento, including the Department of Justice.
The state Department of General Services, which is overseeing the sale, announced last month it will sell the properties for $2.3 billion to California First LLC, a partnership led by a Texas real estate firm and a private equity firm based in Irvine. About $1 billion from the sale will be used to pay off bonds on the office buildings.
The department's chief deputy director, Scott Harvey, said during Monday's meeting that the sale was carefully analyzed, including the proposal to sell only the buildings and keep the land.
"It's tough when you finish near the top but don't quite get there," he said of the runners-up. "I respect the fact that the public offering was a competitive offering. When it was all said and done, it didn't offer the same benefits to the state of California, and that's why the director has recommended we sell to the vendor who did."
Even with the one-time cash infusion from the proposed sale, the Legislative Analyst's Office estimates that a $6.1 billion deficit has emerged in the spending plan for the 2010-11 fiscal year that Schwarzenegger signed last month.
The Republican governor has called for a special session of the state Legislature to make more cuts after new lawmakers are sworn into office on Dec. 6.
Jim Lombard, chief administrative officer for the controller, called the building sale "another in a long line of budget gimmicks that simply pushes our fiscal challenges down the road."
© 2010 The Associated Press.