State sale of public buildings may have unintended consequences for California

Is California making a great financial move, or is it short-selling in a panic trying to solve its budget crisis?  That’s the question that state-watchers should be asking about the so-called Golden State Portfolio now being offered by CB Richard Ellis realty.  The list includes some of the state’s iconic public buildings such as the Ronald Reagan Building in Los Angeles and the Civic Center in San Francisco.

The idea is to generate some $2 billion from sale of the buildings that would be used to help close the state’s budget deficit.  But the sale would include a lease back agreement covering the next 20 years.  So new owners would not only gain the buildings at today’s depressed real-estate prices, but would also get a huge, guaranteed income from the state.  Alternatively, the state would be bound to the long-term costs of the rental agreements.  No one has figured out whether this trade-off will result in a net gain or net loss to the state over the 20-year time frame of the lease back arrangement, according to a recent SF Weekly article

The pushback on an earlier sale/lease back proposal provides an object lesson in the risks inherent in a hurry-up process.  The governor proposed that the Orange County Fairgrounds be put up for bid, and county officials were given information that the public use of the land would be protected.  Not so, according to this article published on a popular blog site.  The fine print in the agreement permits sale of the property to the highest bidder, with usage up to the new owners.

The Fairgrounds sale was supposedly vetted by both county officials and state legislators who reviewed and approved it as part of Assembly Bill X4 22.  A December 2 letter to the governor from 69th District Assemblyman Jose Solorio raised serious concerns with the bill, stating that the process “has been tainted by misinformation, misrepresentation, conflicts of interests, questionable legal and ethical activities….” Solario also notes that “a potential constitutional barrier regarding the sale of the property exists.”  The Assemblyman has introduced legislation to rescind the provisions of AB X4 22 regarding the specific sale of the Orange County Fairgrounds.

It’s hard to understand how the “fine print” of AB X4 22 got past state and county officials and the media.  And it begs the question of why there is not more in-depth reporting on the downside risks of the sale and leaseback of the Golden State Portfolio.  The people of California deserve a deeper accounting of the issue, and a balanced perspective on whether this plan is just a short-term fix with negative long-term consequences, or a truly good idea for the state.

Among the questions that need to be explored are the efficacy of selling property in the current depressed marketplace and the consequences of such sale and leaseback arrangements in other states.  There are also ramifications for services such as state-operated day-care centers within these buildings that could be forced out under private ownership.  Let’s get the whole picture before we jettison a public trust for short-term financial gain.