Garage Sale

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Two years ago, U.S. officials proposed trimming the federal deficit by selling assets like roads and airports, and then leasing them back. Now, California's leaders have hit upon the same bad idea.

Governor Schwarzenegger and the Legislature want to pare the state's $25 billion deficit by selling 11 office buildings for $1.2 billion and then leasing them back. This fiscal sleight of hand is a bad idea and will saddle our next generation with untold costs.

According to the non-partisan Legislative Analyst's Office, the state would receive money up front from the sale of the buildings, then lease them back for 35 years. The net cost to  the state would be $1.4 billion.

This is like taking out a mortgage on your home, and paying 10 and a quarter percent interest. At the end of 35 years, the loan is paid off and you still don't own your house. If you want to stay, you have to pay rent for the privilege of leasing back your own home.

But there is still hope that sanity will prevail. The properties sale could be blocked. According to Joe Cotchett, an attorney representing two former state employees in a lawsuit to stop the sale, "this represesnts an unprecedented transfer of taxpayer-owned property to private investors."


The complaint also questions the secrecy surrounding the state's choice of buyers. This raises serious concerns about the identity of the new owners of these critical facilities. The two plaintiffs are former Los Angeles state building authority employees who were fired after opposing the sale-leaseback proposal.

The court must act soon. Escrow on the sale closes December 15th. What's more, nobody's told us how much of the sale price will be paid out to brokers and investment bankers as fees and commissions. Just a few days ago, there were reports that the part-time mayor of Santa Ana, Miguel Pulido, admitted that he would receive $500,000 for what he called a "success fee" to help arrange for the sale of the buildings. Pulido said he was acting as a private citizen in this matter.

I fear the governor will leave California in much worse shape than when he took office -- with 11 of its irreplaceable properties in private hands, and future generations saddled with a huge cost burden from this real estate blunder.

With a Perspective, i'm Joe Epstein.