San Francisco Judge Refuses To Stop Sale Of California State Buildings
SAN FRANCISCO (CBS / AP / BCN) -- A judge on Friday refused to stop the sale of 11 state properties to a group of private investors, handing Gov. Arnold Schwarzenegger a legal victory as he seeks to close the deal before leaving office.
Superior Court Judge Charlotte Woolard denied a request for an injunction to halt the sale, saying she did not think there was enough support to bring the case forward and show that taxpayer funds are being wasted. Opponents vowed to appeal.
KCBS' Barbara Taylor Reports:
The state is selling the buildings — including the San Francisco Civic Center and the Ronald Reagan building in Los Angeles — for $2.3 billion to California First LLC, a consortium of investors led by a Texas real estate firm and a private equity firm based in Irvine.
The state Department of General Services is trying to close the deal by Dec. 15. After construction loans are paid off, the state expects to generate more than $1.2 billion to help fill the state's general fund. The state will continue to use the space by entering into a 20-year lease with the new owners.
"We're very satisfied with the judge's ruling today," said DGS spokesman Eric Lamoureux. "It confirms what we've always known, that the sale-leaseback transaction is valid. We will be moving forward to close the escrow process and complete the sale at this point."
The lawsuit was brought by two former state building authority members, Jerry Epstein and A. Redmond Doms, who were ousted by Schwarzenegger after they asked the state to perform a cost-benefit analysis and questioned the long-term consequences for taxpayers.
In affirming a tentative ruling she made earlier in the day, Woolard said Epstein and Doms lacked sufficient standing to bring the case.
Their attorney, Joseph Cotchett, said he would file an immediate appeal.
"We are going to the Court of Appeal on Monday," Cotchett said.
"It's not too late to show that this transaction is a stealing of taxpayers' money," he said.
Cotchett said an injunction was sought to stop the sale so it could be considered on its merits. "One understands that this was just a stop along the way; the case goes on," he said.
Opponents of the sale contend the deal should not proceed without the consent of the Judicial Council, which has authority over buildings housing the state's appellate courts. They also claimed the proposal constitutes a waste of taxpayer money and an illegal gift of public assets to a private party.
"If President Obama and the Congress decided to sell the United States Supreme Court (building) to investors foreign and domestic, you can well imagine the uproar," said Louise Renne, an attorney representing former building authority member Don Casper, who also objected to the sale. "Well, we have the same thing going on right here in the state of California."
The 11 office complexes contain 24 separate buildings and were sold to help close the state's budget deficit in the current fiscal year. Even with the sale, the state faces a $6.1 billion deficit this year.
An analysis by the nonpartisan Legislative Analyst's Office found the deal will end up costing taxpayers at least $1.4 billion over 35 years. The state will pay an effective interest rate of 10.2 percent to rent back the buildings it now owns, about double what the state pays on existing bonds used to build its offices.
Opponents questioned the bidding process. During a deposition of state Treasurer Bill Lockyer, they found that investors had sought to arrange to give a $500,000 "finder's fee" to Santa Ana Mayor Miguel Pulido if the sale goes through.
Until the lawsuit was filed last month, the state refused to release information about the losing bids.
"This bidding process was a sham," Cotchett said. "It's a situation where they're running something up the flag pole at the last moment, giving the taxpayers no transparency whatsoever."
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