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Distressed Properties 

The state's quick budget fix of selling off public buildings is a horrible idea.

Wednesday, Mar 10 2010
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Donald Casper seems an unlikely leader for a social protest. He's a former chairman of the San Francisco Republican Central Committee, a former member of the state Republican Central Committee, and a member of San Francisco's Civil Service Commission as well as a laundry list of local civic groups. As a lawyer, he represents businesses in lawsuits.

But Casper took a stand resembling a 1960s-style sit-in to oppose what he sees as the state government's irresponsible plan toraise $2 billion by selling off 11 office buildings, including San Francisco structures that house the state Supreme Court and the PublicUtilities Commission.

Until March 3, he sat on the San Francisco State Building Authority, a three-person panel that controls repayment of bonds issued to fund construction of the California Supreme Court building at 350 McAllister and the Public Utilities Commission offices at 505 Van Ness. On Feb. 26, in an item that ran on SF Weekly's news blog, the Snitch ("Ex-S.F. GOP Boss Seeks to Halt Sale of Supreme Court, PUC Buildings," Matt Smith), Casper vowed to use his authority in an attempt to block the sale. "People who worship the market will snicker at this, but whatever arguments could be made for not selling the state Capitol can be made for not selling the headquarters of the California Supreme Court," he was quoted as saying. "It is of paramount importance that all three branches of state government maintain every shred of independence."

On March 3, he and fellow member Stan Moy were fired from the building authority.

"I want to take exception to the word 'firing,'" said Jeffrey Young, spokesman for the state Department of General Services, which is conducting the sale and carried out the firings. "Their services ceased to be required."

Casper, who was appointed by Governor Pete Wilson in 1993 to the volunteer position, believes he was fired for his stance against the selloff. "Where a public official, even a very minor public official, is fired for his or her viewpoints, that can only mean that the appointing authority can't deal with those viewpoints," he said. "If an appointed member of a quasi-independent government body, no matter how minor, feels that he or she has to toe a company line, it's not democracy."

Moy did not return two calls requesting comment. Young wouldn't say why the men's services suddenly "ceased to be required." Casper's stand may have turned out to be more Don Quixote than Rosa Parks: As of March 4, more than 200 registered bidders had signed up for the state offering, which has proceeded apace despite his short-lived protest.

But in the same way that noble principles lay under Quixote's futile quests, Casper was tilting in the right direction. The selloff is a dressed-up way to laden California with more financial obligations, grant tax relief to private investors, and benefit the politically connected financial services firm handling the sale. Worst of all, this kind of dishonest, irresponsible privatization deal tarnishes the very concept of government asset sales, which, if done properly, can make the public and private sectors work together more effectively. This selloff looks even worse when we compare it to ripe California possibilities for privatization done right.


The great California government real estate fire sale, which began Feb. 26, is being touted by Governor Arnold Schwarzenegger as a way for the state to get out of the real estate business and let private-sector property experts take charge. Legislation authorizing it was approved last summer by a near-unanimous state Legislature vote and signed by the governor.

"He's trying to change the relationship the state has with buildings," is how Young described Schwarzenegger's glorified borrowing spree. "The state supplies services to the citizens: roads, schools, health care. We're not in the business of providing real estate. Let people who want to be in the real estate business do that."

That sounds like a great idea.

And it might be, if only the selloff were truly designed to make government more efficient.

But far from restructuring government to provide better services, it's actually budget smoke and mirrors epitomizing the worst of California's political dysfunction. It's a glorified scheme to borrow money to fill the current budget gap, akin to homeowners selling their mostly-paid-off houses and then paying a premium in rent.

The deal aims to raise $2 billion, part of which would pay off bonds that were issued to construct the buildings in the first place. The $660 million left over would go toward closing this year's budget gap. The state would then pay the new owners billions of dollars in rent over the next 20 years.

It's a sop to the politically connected. It turns out that the deal involves around $25 million in fees to firms involved in paying off bonds and conducting the sale, including $1.6 million to CB Richard Ellis Group, where Senator Dianne Feinstein's husband, Dick Blum, sits on the board of directors, and whose employees have donated generously to politicians, including Schwarzenegger.

It is a quiet way to lay off a small town's worth of government employees. "There are between 600 and 1,000 state workers currently employed in those buildings," Young said. "It's possible there may be some layoffs if the owners decide to go that way."

And it's a sneaky way to profit by helping private corporations dodge federal income taxes. Private organizations and individuals, such as those expressing interest in buying state buildings, are allowed by the IRS to deduct a building's wear and tear from federal income taxes.

Governments such as California's don't pay federal taxes. So despite owning many billions of dollars' worth of real estate, our state government can't take advantage of this tax deduction. "It's kind of a gimmick for California to get money from the feds," Golden Gate University law professor Myron Moskovitz notes.


Perhaps the worst aspect of this deal is that this kind of cagey, politically motivated, fiscally irresponsible asset sale besmirches the good name of privatization. Though his deeds are wrong, Schwarzenegger's words surrounding this deal are right: Selling off assets, when done intelligently, can in certain cases improve government's ability to provide services.

If used as a strategic tool, rather than a way to push budget problems into the future, privatization could be a weapon to create jobs and make public agencies function more efficiently. Here are a few examples.

Take Muni — please? For a John Lennon moment, imagine San Francisco's city leaders had the cojones and public support to sell Muni bus routes to private operators. To most of us who don't remember the private Key System mass transit network covering most of the Bay Area from 1903 to 1960, this may sound preposterous. But in Mexico, a country far more socialistic than the United States, thousands of private, SuperShuttle-style jitneys serve the nation's capital. In combination with an excellent public subway system, they make it possible for residents to live within minutes of cheap, swift transit rides almost anywhere in that massive city. That's very different from here, despite a midsized nation's worth of public spending on transportation.

Oh, no: SFO. If only we could change federal and local laws to allow for the privatization of San Francisco's airport. That little-noticed swath of asphalt and empty eateries south of the city is a sinecure for public officials with questionable pasts. Airport director John Martin is notorious for having overseen a secretive, illegal scheme to divert San Francisco funds into the privatized airports of Honduras. Under his watch, local airport construction projects became money grabs for politically linked contractors. And why not? His putative boss, Airport Commission president Larry Mazzola, is a plumbers' union chief who was investigated by the U.S. Department of Labor for his involvement in a scheme to divert $50 million in worker benefit funds. Airport privatization isn't pie-in-the-sky: Canada and Britain, bastions of public services such as universal health care, have led the world in contracting airport services to the private sector.

Not-so-freeways. Republican health care wonks (yes, they exist) like to remind us that the system is out of whack in part because consumers don't pay directly for services used. The same is true for roadways, which are financed with a gasoline tax voters refuse to raise, thus letting the system fall into disrepair. Why not change state and federal laws and sell I-80, I-5, I-505, I-280, and the rest of our freeways to private toll-road operators and allow them to charge unsubsidized user fees to pay for the true costs of freeway real estate, infrastructure, and upkeep? We'd have better roads, along with incentives for some commuters to use public transit such as BART.

The list of possible smart ways to sell off government assets could fill a book. Unfortunately, this tome would not contain a chapter on selling the San Francisco buildings housing the Supreme Court and the Public Utilities Commission. "My gut tells me this should not happen," Casper said.

About The Author

Matt Smith

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