Saturday, November 26, 2011

If You Think the Trigger Cuts Won't Happen, California has a Building to Sell You

While much of our energies these days go to mocking the flaws of California's current budget, it's important to remember that the Legislature actually passed two spending plans this year. The first, which cost lawmakers their pay for a while and drew out Jerry Brown's veto pen, wasn't as different from the one Brown signed as you might think, but it featured a handful of maneuvers that couldn't even pass Controller John Chiang's smell test. One of these was the sale of 11 state-owned buildings for an upfront total of $1.2 billion.

While we like the idea of selling government-owned assets into private hands, the sale illustrates Sacramento's unwavering ability to turn gold into lead. One problem is that selling off court buildings without approval from the Judicial Council is illegal. The second, larger problem is that the state is required to lease back buildings it sells for at least two decades. According to the Legislative Analyst, the "sales" would thus amount to 10% loans, and the resulting profit at taxpayer expense could violate laws against giving gifts to private citizens. In other words, it's a decent idea in principle, but the way California would implement it is terrible. And it was a good thing that Brown vetoed the budget that contained it.

Unfortunately, that was then, and California is once again scrambling for cash, this time to avert mid-year trigger cuts. And according to the Sacramento Bee, the same bad idea is finding new life. The private capital group trying to buy the buildings, California First, has apparently restructured its deal to lower the cost to taxpayers. The new proposal would raise the $1.2 billion through bond issues rather than private capital, and the buildings would be returned to public ownership after 30 years. Of course, without any of the details or any information on the assumptions the equity group used, it's hard to say more. But on the face of it, the new plan doesn't look much different from the old one. At the end of the day, it's still the government borrowing hundreds of millions of dollars on the taxpayers' credit card.


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