Legislative Analyst Questions Cost Of Selling California Properties
SACRAMENTO (AP) -- The plan to sell California state office buildings contained in this year's budget will cost taxpayers $1.4 billion over 35 years, the nonpartisan legislative analyst said Wednesday.
The analysis released this week says 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. That is about double what the state pays on existing bonds used to build its offices.
"There are long-run costs and short-term benefits," said Mark Whitaker, who wrote the 12-page analysis for the Joint Legislative Budget Committee. "It's going to cost a lot more in the long run. Then again, it helps us get through the current year and our budget problem now."
The proposal to sell state assets, including the Ronald Reagan building in Los Angeles and the San Francisco Civic Center, has been promoted by Gov. Arnold Schwarzenegger and won approval in the Legislature.
The Department of General Services 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. That will generate more than $1.2 billion in the current fiscal year for the state's general fund.
About $1 billion from the sale will be used to pay off bonds on the office buildings.
Department of General Services spokesman Eric Lamoureux said the long-term trade-off was needed to avoid tax increases or deeper cuts to services in the state's current budget.
"The whole purpose behind the sale was to generate immediate revenue to help shrink the state deficit," he said. "We will have accomplished that."
Even with the one-time cash infusion, the budget Schwarzenegger signed last month already has a $6.1 billion shortfall, according to a separate legislative analyst's report released Wednesday.
Lamoureux said the department did not calculate an effective interest rate for leasing back the buildings, so he couldn't comment on that projection by the Legislative Analyst's Office.
The analysis looks out 35 years, and Lamoureux agreed the state would lose money over that period. But he said the projection is speculative because the state would have several options after the 20-year leases expire.
The department calculates the state will save $2 billion over 20 years because it will not have to pay for repairing or maintaining the buildings once they are privately owned, he said.
The analysis criticizes the Department of General Services, which operates under an acting director appointed by Schwarzenegger, for only projecting costs and savings over a 20-year period. For example, the department did not account for the cost to the state of renewing the lease or renting or buying alternative space after the 20-year lease ends. It also ignored the escalating costs of the state's rent under the leaseback deal, the legislative analyst said.
The analysis also criticizes the department for not releasing information about the competing bids. Lamoureux said the details will be released after the deal is closed.
Sen. Denise Ducheny, D-San Diego, said the joint budget committee she chairs has asked Schwarzenegger's administration to respond to the analysis, although legislators can't block the sale. She said the outgoing Republican administration should delay the sale until it can be reviewed by the incoming administration of Democrat Jerry Brown.
The legislative analyst assumed the sale-leaseback deal would close by the end of December.
Budget negotiators faced a tough choice because they needed the $1.2 billion from the sale, she said.
"But gosh, gee, are we really giving up our souls to get it?" Ducheny said. "That's the question."
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