Lawsuit Seeks Halt To Calif. Building Sale
SACRAMENTO (AP) ― A lawsuit filed Tuesday seeks to halt the sale of 11 California office complexes, alleging the process illegally bypassed the state Judicial Council and amounts to an improper gift of public funds.
The lawsuit, filed in San Francisco County Superior Court, wants a preliminary injunction before the sale can be finalized, which the state expects sometime in December.
It alleges the plan that was championed by Gov. Arnold Schwarzenegger and approved by the Legislature ignores the jurisdiction of the Judicial Council, which has authority over buildings housing the state's appellate courts.
Two of the buildings that are part of the sale, the San Francisco Civic Center and Ronald Reagan State Building in Los Angeles, house a variety of court offices, including the California Supreme Court and two courts of appeal.
The lawsuit was filed against Schwarzenegger and the state Department of General Services on behalf of two people removed earlier this year from a Los Angeles building authority, Jerry Epstein and A. Redmond Doms. Schwarzenegger replaced them because they wanted the state to perform a cost-benefit analysis and questioned the long-term consequences for taxpayers.
A sale-leaseback, as the deal is called, may not proceed without the consent of the Judicial Council, the lawsuit said. It also claimed the proposal constitutes a waste of taxpayer money and an illegal gift of public assets to a private party.
The 11 office complexes contain 24 separate buildings and were sold to help close the state's budget deficit in the current fiscal year. Even with the sale, the state faces a $6.1 billion deficit this year and another $19.3 billion deficit in the fiscal year that begins in July.
After construction loans are paid off, the sale will give the state between $1.2 billion and $1.3 billion this year. The state will then lease the buildings back from the new owner, California First LLC, a partnership led by a Texas real estate firm and a private equity firm based in Irvine, for 20 years.
An analysis by the nonpartisan Legislative Analyst's Office last week said the deal will end up costing taxpayers at least $1.4 billion over 35 years, which the analyst argues is a more realistic timeframe.
It also said the state will pay an effective interest rate of 10.2 percent to rent back the buildings it now owns, about double what the state pays on existing bonds used to build its offices.
Moreover, the terms of the lease say the state's base rent will increase 10 percent every five years and that the state will be responsible for paying annual changes in the owner's operating expenses.
"The sale represents the worst kind of economic policy and will haunt future generations for years to come," the suit alleged.
Under those terms, the lawsuit says, the rent will "quickly surpass market rates, to the detriment of California's taxpayers who spent decades paying for these eleven properties only to become renters instead of owners."
Many of the buildings were scheduled to be paid off in just a few years.
The state controller and treasure oppose the deal, but the Legislature voluntarily gave up any oversight of the process when it allowed the Schwarzenegger administration to handle all aspects of the sale.
Schwarzenegger's administration has referred inquiries about the state office sale to the Department of General Services. A spokesman, Eric Lamoureux, said the department does not comment on pending litigation but is moving forward with the transaction.
The lawsuit criticizes the sale-leaseback plan on a number of fronts. It said the deal was done "with little study and almost no public discussion" and that the Department of General Services has kept details of the award process secret.
The lawsuit said the sale process did not have any published criteria or scoring system for evaluating bids. When the contract to California First was announced, the state did not release a ranking of all other qualified bids so the public could determine whether it was receiving the best deal.
It said the process "was entirely lacking in transparency." The lawsuit also said little is known about California First, which it says is a consortium led by Hines Interests and a firm called Antarctica Capital Real Estate LLC.
Anne Marie Murphy, a San Francisco attorney representing the plaintiffs, said Antarctica Capital has a parent company based in Mumbai.
"The secrecy of the process and the dearth of information about the state's new landlords raises serious concerns about the identity of the new owners of these critical government facilities," the lawsuit says.
No hearing date has been set for the request for a preliminary injunction.
(© 2010 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
