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Silencing objections to sale of State buildings raises red flags

by Alan Markow, published

California’s proposed fire sale of what the offering realtor describes as “an 11 property, 7.3 million square foot sale/leaseback portfolio located in the San Francisco Bay Area, Los Angeles and Sacramento” has generated considerable skepticism around the state. 

After all, the proposed sale of these public buildings is taking place during one of the biggest real estate meltdowns in the state’s history.  That means depressed prices for state assets.  In addition, the sale is linked to a guaranteed 20-to 30-year lease agreement with state agencies.  So, while the deal sounds like a win-win for enterprising entrepreneurs, it also appears to be a lose-lose for California’s taxpayers.

In response to criticism of the plan, the administration has silenced two key voices of opposition by quietly removing them from their oversight positions.  According to the Associated Press, Marina del Rey developer Jerry Epstein and retired real estate investment manager Rusty Dom were removed from their positions on the Los Angeles State Building Authority for asking questions about Schwarzenegger's plan.   

Epstein specifically asked for a cost-benefit analysis of the sale and lease-back of the Ronald Reagan Building in downtown L.A..  The Reagan building is scheduled to be paid off next year.  

Here’s the breakdown: should the sale of the buildings go through as anticipated, the state budget would benefit by almost $600 million this year.  But remember, the state’s deficit is around $20 billion – so the income is a drop in the bucket.  Meanwhile, according to syndicated California Focus columnist Thomas Elias, future rents California government would be forced to pay would come to at least $5 billion and might reach $6 billion.   

Epstein, who is concerned with the potential long-term costs to the state, is not exactly a young upstart with political aspirations.  He’s a highly successful 86-year-old who has served as president of the Los Angeles Board of Airport Commissioners and as chairman of the California Transportation Commission. 

But even if Epstein were a Young Turk looking for political gain, his concerns would raise serious questions about the legitimacy of the sale-leaseback process, and its long-term impact on the state.  The “firing” of Epstein and Dom is disturbing evidence that the Schwarzenegger administration is unwilling to consider alternative points of view, and simply wants to move forward without any further discussion. 

If the sale of state properties is a worthwhile and creative approach to solving the state’s deficit crisis, then it should be able to bear the open discussion and cost/benefit analysis that the skeptics are seeking.  Closing the door on serious-minded opponents simply raises more red flags about the entire undertaking.

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