From owner to renter: California's potential property sale

The Earl Warren Office Building, the home to California's Supreme Court, is among those scheduled for sale.

The economic problems that cities like Richmond face are not isolated. They extend to the state level, where California is dealing with a crippling $20 billion budget deficit. Lawmakers are ready to practically sell the clothes off their backs to solve these problems. And that’s not really an exaggeration – today, the state was going to sell the California Supreme Court and San Francisco’s Civic Center buildings, along with nine other properties, to the highest bidder.

Proponents of the deal, including Governor Schwarzenegger, argue that California could net $1.3 billion from the transaction. But a lawsuit has been filed against the state, claiming that the sale is both unwise and illegal.

Former San Francisco City Attorney Louise Renne is heading up the legal effort against the sale. She says the case was originally supposed to be heard in the First District Court of Appeals:

LOUISE RENNE: Interestingly enough, since the first district is housed in one of the buildings to be sold, the First District said they felt they may have a conflict of interest.

The case was moved to a different court, which ended up putting the sale on hold, at least temporarily. KALW’s Rina Palta sat down with Renne to talk about courts hearing cases about their landlords, and other quandaries presented by the public sale of private buildings.

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RINA PALTA: We’re obviously sitting downtown in your new law office firm, but you were a public servant for many years…

LOUISE RENNE: I was. Actually I was on the San Francisco Board of Supervisors for a while, and then I was the city attorney for San Francisco for a number of years.

PALTA: So this current case that you’re working on must strike a chord considering the state, as I understand it, is looking to sell off public properties – is that right?

RENNE: Absolutely. When I had first read about this deal, so-called, in the paper, I thought, “This really doesn’t make any sense to me at all.”

PALTA: So, describe the situation. It seems the state believes that they can make considerable budgetary gains by selling off some of their properties. We are obviously in a $20 billion plus budget gap at this point. How do they think that this is going to help them?

RENNE: Well, first of all there is no doubt that the state has a huge financial deficit. And one of the reasons the state does have a financial deficit is that over the years, many short-term fixes have been long-term bad deals. In other words, I guess the old-fashioned expression is, the Legislature and the government have just kicked the can down the road.

Well, that’s exactly what this deal is. What this deal does is for a year one-time shot of $1 billion into the general fund, what they would do is sell the Supreme Court buildings, the appellate court buildings, the Attorney General law enforcement buildings, and then require those entities and the state to lease back the buildings and pay rent. So what happens is for $1 billion this year, the taxpayers would end up by the time it’s all told, of paying well over $6 billion over the next 35 years. These are not made-up numbers, this is what the independent, non-partisan legislative analyst has found.

PALTA: Your lawsuit has basically said two things, that this is an unwise deal, and that this is an illegal deal. And I think you’ve explained pretty well why you believe it’s unwise? Why is it also illegal?

RENNE: Well, we think it’s illegal for a couple of reasons. Number one, we think there’s a very good case to be made that this is a waste of taxpayer funds. It is a gift of taxpayer funds. We also think that the Legislature improperly delegated to the Department of General Services authority to make this deal. And that even if the Legislature did have the proper delegation authority existing, that the Department of General Services failed to make a deal that was in the best interest of the state, which is what the legislation says it has to be – in the best interest of the state. This is not.

We also think that this deal violates Proposition 58. Proposition 58 was a measure that was passed by the voters that says in effect, you can no longer fix the California budget with a short-term fix which has long-term consequences. And that is a perfect description of this deal.

PALTA: So what do we know about this investment group that's looking to buy these properties, and what do we know about how they gained their status as the primary bidder?

RENNE: Well those are two very interesting questions. First of all, we don't know who all of the investors are. We do know that it appears to be investors not only of U.S. citizenry but all around the world. One of the investors, for examples, has heavy, heavy investments in Dubai and in India. Others from Mexico. But we really don't know who all the investors are. So that's one thing that, you know, I think since this is a group that's going to be responsible as well for the security of these buildings, I think we ought to know that. I mean I'm not one who says you can't have foreign investments. That would be quite silly, but on the other hand you should know who you are going to be having be responsible for the security of the California Supreme Court and the Attorney General's law enforcement. I mean you've got to be practical about this.

But the other part about it, too, is the process has been highly questionable. Now, we haven't been able to find out as much as we would like to because it's been such a short period of time. The deal wasn't highlighted and announced basically until now – a few weeks ago. In the short period of time that we've had to investigate, number one, we've found out that there were to be finder's fees paid and apparently to a Mayor of Santa Ana. What does a Mayor of Santa Ana have to do with a finder's fee? And how many other finder's fees are there that are out there?

PALTA: As a former politician yourself, what's the philosophy behind this deal? Is it just an opportunity for some to make money or is this some overall devaluation of the public sphere? What's the overall narrative of this event?

RENNE: Well, to me personally, number one, I think this deal smells to high heaven and I just hope that we will get the opportunity to really see what's going on here. Because, to me, this deal smells. There are a few people who are going to make a lot of money, that is for sure, at the expense of the taxpayers. I also think that this deal should be challenged because I think that it is yet another structural defect and ont of the reasons why California is in the bad financial shape that it is. I hope that this lawsuit will be a call to action on the part of all responsible lawmakers to say, "You cannot sell our Supreme Court. Our Attorney General's buildings and our appellate buildings are not for sale. And we're going to go about solving our budget without letting go of our important buildings that are at the heart of our judicial system."

Follow the development of the California state property sale at Rina's cops and courts blog, The Informant.