Documents detail net loss to Calif. taxpayers over 20 years if state office buildings are sold

Documents detail net loss if Calif. buildings sold

SACRAMENTO, Calif. — State documents specifying the amount California has left to pay on the construction bonds for its state office buildings and for ongoing maintenance provide the most detailed financial picture to date of Gov. Arnold Schwarzenegger’s proposal to sell the properties.

After 20 years, the deal would end up costing the state about $1.1 billion more than it would gain in the transaction, according to an analysis of the latest documents, which were obtained by The Associated Press.

The analysis of the proposal comes a day after Schwarzenegger promised he will not go through with the plan if it turns out to be a bad investment for the state.

“I’m not crazy and do a fire sale,” he said in response to a reporter’s question. “Believe me, it won’t happen.”

His statement followed an earlier AP analysis, based on marketing reports prepared for prospective buyers, that showed California would pay $5.2 billion over the next two decades to rent the buildings back from the new owners.

Schwarzenegger had pushed the Legislature into agreeing to the sale last year as a way to raise immediate cash to deal with California’s perpetual budget deficits. The administration hopes to net $660 million from the sale.

What had not been disclosed publicly was the total amount California has left to pay on its construction bonds and a projection of its operating and maintenance costs in the years ahead, figures needed to arrive at a net cost or benefit to the state.

The Department of General Services figures obtained by the AP show California will pay $1.7 billion to retire its debt for the 11 parcels that house 24 office buildings. The state already owns three properties outright, while all other bonds are scheduled to be paid off in 10 years or less.

If the state continues to own the buildings, it will cost about $1.7 billion to operate and maintain them for the next 20 years, based on current costs and a 3 percent annual inflation rate. Based on the $660 million the administration hopes to net from the sale, that leaves a long-term cost to the state of $1.1 billion.

The numbers are not definitive because offers for the buildings could come in higher or lower than the administration anticipated, and monthly rents would still have to be negotiated if a sale goes through and might not meet the targets contained in the marketing reports.

The reports reviewed earlier by the AP say the state would incur additional costs it currently does not have if the buildings are sold. Those include parking fees for 3,500 spaces totaling nearly $140 million over 20 years and possibly paying for the increases in annual property tax assessments.

Administration officials say if the state sells its office buildings, it will no longer be on the hook for unexpected expenses, such as damage from natural disasters.

“Until the bids are fully analyzed, we are not going to know the potential bottom line,” said Erin Shaw, a spokeswoman for the State and Consumer Services Agency, which oversees the Department of General Services. “But I will say, this initiative is one way to ensure taxpayers are no longer on the hook for tens of millions of dollars for damage on self-insured buildings.”

Among the buildings up for sale are the Ronald Reagan state building in Los Angeles, the San Francisco Civic Center and Public Utilities Commission building in San Francisco, and the attorney general’s office and state Department of Education in Sacramento. Bids from prospective buyers were due last week and remain under seal.

No fiscal review was conducted at the time lawmakers authorized the sale last summer to determine whether California ultimately would make or lose money. All but three of the 120 state lawmakers voted for the proposal.

To manage state buildings, cities such as San Francisco and Los Angeles established joint building authorities with the state to oversee construction and repayment of bonds. Those bodies must approve the sale.

The administration this year quietly removed gubernatorial appointees on two building authorities who had questioned Schwarzenegger’s proposal, a move reported by the AP. They were replaced with his supporters.

The replacement of board members and the AP analysis of the marketing reports prompted the Assembly Accountability and Administrative Review Committee to scheduled a hearing for next Wednesday. The committee said it will scrutinize the proposed sale and the appointees’ removal.

Among those scheduled to testify include former Los Angeles State Building Authority president Jerry Epstein and former San Francisco State Building Authority member Don Casper.

Epstein was removed after he asked the state for a cost-benefit analysis, while Casper was let go after he suggested it was financial folly for the state to sell the San Francisco Civic Center, which houses the California Supreme Court.

“I understand he’s standing back, but then why did he remove all of us that were supposed to ask the questions?” Epstein said Thursday in response to Schwarzenegger’s comments.