Before GAS became EX-GAS, one of his final victories was arranging a deal to sell 11 of the 24 state buildings that he placed on the market under the guise of fiscal austerity. This deal included several pieces of Sacramento real estate: The East End Complex, Attorney General Building, Emergency Management Agency Building, Franchise Tax Board Complex, and Department of Justice Building. Their sale was blocked in December by a state appellate court.
Luckily, a new administration means a chance to reverse this decision before it costs California billions.
George Skelton, the sage of California politics, calls it “perhaps the worst real estate deal the state of California has ever concocted.” The Legislative Analyst’s Office calculated that California would lose $1.5-$2.5 billion on the sale during the negotiated 20-year lease in exchange for a one-time cash infusion of $1.3 billion to the General Fund. Why would GAS cut such a terrible deal?
The same reason he did a lot of things: To screw with the unions.
Selling the buildings means no union janitors, no unions electricians, no union cafeteria workers, no union security, no union maintenance…. one step closer to his Utopian vision of a state government free from his worst enemy since Bennett from Commando.
Drop Jerry a line here and tell him that we like our state buildings the way they are, except for the killer mold and the gargoyle that feasts on tourists. Those should really go. Whether or not you like unions, you shouldn’t like billions in wasted tax money just to purchase a little spite.
The Sac Rag 
Per the LAO report that you cited, the leaseback cost is $646M over 20 years using modified updated DGS calculations (Figure 4). And the LAO officially recommends using a longer 35 yr period, which per their own more rigorous calculation method is $1.44B cost over 35 years (Figure 6). So where do you (or Skelton) get $1.5-2.5B over 20 years from since it’s not in the LAO report?
But consider a few other factors. Getting rid of some overpaid underworked union staff is a big plus all by itself. But the bonus of reduced taxpayer cost for these building services is not even in the DGS or LAO reports but could be quite substantial over 20-35 years. Quite an error of omission on the part of the LAO. And it’s not like these buildings or jobs will disappear… if the current union workers are good at what they do they will be hired by the new owners at market rates.
And if it is a private buyer they will be paying substantial local property taxes (unlike the State, which is exempt) which will be a big help to local budgets. Could use a few extra police patrols around here, you know.
And If it is a local public buyer, all the buyer profits identified in the LAO report will go into that entities budgets (pretty long payback period though).
Seems to me that at the state level this deal is reasonable response to our pending insolvency (gotta sell assets when you are broke), and quite a boon for the economy at the local level. If you care about Sacramento, I suggest sending letter to JB in support of the deal!
LikeLike
The original estimate of total cost to the State for the entire deal, not just through the leaseback, was 600M-1.5M, which was then increased by another 800M. I rounded.
Your ideas of possible benefits have some good points but several holes and what-ifs and wishful thinking. As it is, the deal is a huge monetary loser. You’re right, though, if those benefits could result in additional savings, they should be included in the analysis.
LikeLike
Stickie, Sorry to nitpick but where are you getting the $2.5B cost figure? It is not in Skeltons article, nor in the LAO report.
When the LAO scrubbed the DGS calculations, the figure was $646M. When the LAO did their own bottoms up calculation the cost is $1.4M. The LAO is ostensibly independent, so it is safest to go with LAO’s calcs.
Consider this transaction this way. If the state was solvent, losing $1.4B over 35 years is obviously a bad deal. However this transaction provides an immediate $1.3B towards the states $28B budget hole.
The big question is where do you suggest we get the $1.3B if we don’t take it from here? Education represents most of the budget, so that is most likely alternative. And it is unlikely that voters will approve tax hikes when it goes on the ballot in June.
LikeLike