State building sales may cost tax payers more

October 12, 2010 12:14:00 AM PDT
The recently passed California budget includes the authorization to sell 11 buildings owned by California. On Monday, they were officially sold to an out-of-state investor. The idea is to raise desperately needed cash for the state, but some experts believe it is going to cost tax payers more in the long run.

"I always believed in buying real estate, rather than selling real estate. But you know, when you're in a financial crisis like we are, then you have to make decisions," says Gov. Arnold Schwarzenegger.

The decision to sell 11 state buildings for $2.3 billion will inject $1.2 billion into the state general fund and help pay off $1.1 billion in bonds on those buildings. It also relieves taxpayers from paying future operating and maintenance costs, but it also locks the state into a 20-year lease with the new owner -- California First, which a group headed by a Texas real estate firm.

"In the long run, it's a very bad deal," says Donald Caspar, a former member of the San Francisco State Building Authority.

The San Francisco State Building Authority oversees the Civic Center court buildings and the Public Utilities building. He says he was removed for opposing the sale, a decision he based on estimates from the California Legislative Analyst's Office.

"It will cost the state $30 million more in the first year to remain in those buildings and that differential will increase to almost $200 million over the course of the 20 year leases," says Caspar.

"I think it limits the state's flexibility," says Phil Tagami.

Tagami is a commercial real estate developer in Oakland where the state building there is part of the deal. He says being tied to a lease keeps the state from downsizing or restructuring its debt.

"You've kicked the can down the road. You've taken out another credit card, and now you don't have the property," says Tagami.

The details of the agreement have not been released, but it is a done deal. The Legislature sold public assets to save programs and jobs for one fiscal year, but it's likely they'll be facing another budget deficit next year.