State Buildings Sale Blocked By San Jose Appeals Court
SAN JOSE (CBS 5) -- A state appeals court on Monday afternoon granted a stay that temporarily stops the sale of 11 state properties to a group of private investors, so that a lawsuit challenging the merits of the sale can be considered.
The decision by the Sixth District Court Of Appeal in San Jose reversed a ruling late last week by San Francisco Superior Court Judge Charlotte Woolard, who had rejected a request for an injunction.
The lawsuit was brought by two former state building authority members, Jerry Epstein and A. Redmond Doms, who were ousted by Gov. Arnold Schwarzenegger after they asked the state to perform a cost-benefit analysis of the sale and questioned the long-term consequences for taxpayers.
The state wants to sell the buildings — including the San Francisco Civic Center — 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 Southern California.
After construction loans are paid off, the state hoped to generate more than $1.2 billion to help fill the state's general fund. The state would then continue to use the space by entering into a 20-year lease with the new owners.
The staying of the sale is a big setback for Schwarzenegger and the state Department of General Services, who had planned to close the deal by Dec. 15.
The 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 - some of which are impacted by the deal. The lawsuit also claims the proposal constitutes a waste of taxpayer money and an illegal gift of public assets to a private party.
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.
(Copyright 2010 by CBS Broadcasting Inc. All Rights Reserved. The Associated Press provided background for this report.)
