Schwarzenegger Moving Forward to Sell Civic Center, State Buildings

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    NEWSLETTERS

    CBRE
    Looking for a good real estate investment? A handful of state buildings, including the San Francisco Civic Center are up for sale.

    California lawmakers and Gov. Arnold Schwarzenegger are moving ahead with a plan to generate $1.2 billion from the sale of state office buildings to help close a $19 billion budget deficit, despite warnings that the deal doesn't pencil out for taxpayers over the long run.
         
    The administration has not identified a winner or the sale price of the 24 state office buildings it plans to lease back.

    The Legislature will have 30 days to review the sale but cannot make any changes. It will not get the final say because of a provision in the budget package passed last year that authorized the sale.

    Legislation introduced this year that would have given oversight of the matter to lawmakers was killed in committee.

    "As a standalone issue, we think this is bad policy," said Shannon Murphy, spokeswoman for Assembly Speaker John Perez, D-Los Angeles. "However, it's more irresponsible not to get a budget than to get a budget that we're uncomfortable with."

    The governor has championed the sale of the state buildings located on 11 parcels as part of his budget demands.

    The Associated Press reported earlier this year that the deal would end up costing the state $5.2 billion in rent over 20 years, perhaps saddling taxpayers with costs beyond whatever the state would net from the sale.

    The AP also reported that Schwarzenegger quietly removed appointees from two oversight bodies that must sign off on the sale. The appointees had questioned whether the administration's plan was in the best long-term interests of California taxpayers.

    In response, Schwarzenegger touted his private-sector experience in real estate transactions and promised there would be "no fire sale" of taxpayer-owned assets.

    Three of the properties already are paid off while four others are expected to be paid off in the next five years. The state also would have to pay off $1.1 billion in remaining bond debt on properties.

    The nonpartisan Legislative Analyst's Office concluded selling the properties then renting back the space could cost the state an additional $1.5 billion, based on a 35-year projection.

    A study by Beacon Economics reached a similar conclusion by looking at a 30-year period. The study was commissioned by the Service Employees International Union, Local 1000, the largest state employee union.

    "You know, it would be so much cheaper for us to borrow the money than go do this," said Chris Thornberg, a principal at Beacon. "It's total insanity."

    The sell-off is included in the 2010-11 budget proposal before the Legislature.

    Assemblyman Hector De La Torre, D-South Gate, wrote a bill earlier this year in response to the AP's reporting that would have required legislative approval of the sale along with a 50-year cost-benefit analysis of selling state-owned buildings and renting the space back at market rates.

    The bill passed the Assembly but was effectively killed by Senate President Pro Tem Darrell Steinberg, D-Sacramento, in the Senate Appropriations Committee in August.

    Properties up for sale include the Ronald Reagan state building in Los Angeles, the Public Utilities Commission building in San Francisco, the San Francisco Civic Center, which houses the state Supreme Court, and several buildings in downtown Sacramento, including the building housing the attorney general's office.

    The administration initially estimated the sale would net $660 million to help close the state's budget deficit, but Schwarzenegger and lawmakers said in the tentative budget agreement they struck last week that it would generate $1.2 billion in proceeds.

    The Department of Finance said the $660 million figure was a conservative estimate put forward before the administration fully understood the value of the state's properties. It also assumed the buildings would be sold over several years, rather than at one time.

    In June, the Department of General Services reported receiving more than 300 offers for the buildings. Last month the department rejected a California Public Records Act request filed by the AP to review those bids.

    The department said disclosing the identity of the bidders and the details of their bids "could adversely affect DGS's ability to negotiate the final sale and leaseback terms most favorable to the state."