Editorial: Building sale smells like another state fiasco
For more proof that the administration of Gov. Arnold Schwarzenegger is living in a world of illusion, look no farther than some serious number crunching on his proposed sale of state office buildings.
Once touted as a way to close the state’s budget gap, the plan to sell and lease back 11 flagship office properties is nothing more than revenue shifting — with a huge bill attached to the back end.
California’s Legislative Analyst Office says the planned transaction would accomplish a one-time boost of $600 million to $1.4 billion. But it would wind up costing an extra $200 million in costs over revenue during the next 20 years.
A separate study by the Sacramento Business Journal put the figure a lot higher, concluding that excess costs over revenue could reach $1.3 billion because of lease-payment guarantees the state would have to make in order to lock up long-term occupancy of the places where thousands of state bureaucrats work.
Despite evidence that this is a lousy deal for taxpayers, the bidding process continues and the state Department of General Services could conduct final negotiations with a buyer or a group of buyers, with names released about a month before the fiscal year ends on June 30. Once the bids are in, the clock begins ticking on the Legislature’s 30-day review period to determine whether the sale and lease-back is a good idea.
What has not been stated in this process is that this is a terrible time to sell office buildings, with the availability of capital for commercial real estate purchases at what must be close to an all-time low.
In a best-case scenario, state income taxes and sales tax receipts will continue to come in at a stronger-than-expected pace and the state will be able to slide through the budget with extended furloughs, a pay freeze and some tweaks to get the fiscal year off the ground without a repeat of last year’s budget train wreck.
That scenario is not likely. Which means that some of California’s state-owned crown jewels of commercial real state will literally be pawned to correct a shortfall that is entirely the fault of the current administration as well as a totally dysfunctional legislature.
The patched-over budget will then be handed off to the new administration with a few billion dollars worth of assets missing from the state’s once pristine balance sheet.
In the Euro-zone, Greece, Spain, Portugal and Italy are in deep doo-doo with credit-rating agencies precisely because there is a total lack of confidence in the numbers they are reporting from one year to another. Is Sacramento paying any attention?