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California governor cancels proposed sale of 11 state buildings

By Michael Martinez, CNN
  • Jerry Brown reverses a supposed budget-saving decision by predecessor
  • Brown: Plan to sell, then lease back 11 state buildings would cost $6 billion over 35 years
  • In dealing with a $25 billion budget shortfall, Brown has derided past "budget gimmicks"

Los Angeles (CNN) -- California Gov. Jerry Brown canceled Wednesday the proposed sale of 11 government buildings, an Arnold Schwarzenegger initiative that Brown called "shortsighted."

Brown, a Democrat, said his Republican predecessor's plan to sell and then lease back the 11 properties would have cost taxpayers $6 billion over the next 35 years.

"Selling and leasing back the state's buildings for one-time gains is not prudent," Brown said in a statement.

Shortly after being sworn in last month, Brown announced a draconian budget plan that slashes $12.5 billion in spending and extends $12 billion in tax hikes.

The cuts would hit the state's neediest and state workers the hardest. Some public employees would lose up to 10% of their take-home pay, and the state's Medicaid and welfare program would see a $3.2 billion cut.

Brown is faced with a $25.4 billion shortfall in the budget over the next 18 months. He complained that "budget gimmicks and tricks" had pushed the state deep into debt.

By canceling the sale of the 11 buildings, the state would lose a short-term windfall of $1.2 billion in revenues, so Brown has proposed amending his budget to include borrowing $830 million from special reserve funds, he said. Other funding sources would be $90 million more from the state's Medicaid managed care tax and $100 million less in prison infrastructure project costs, officials said.

"My proposal will not affect program funding in any way," Brown said.

The new plan would cost approximately $18 million in interest on the loans, officials said.

Under Schwarzenegger's plan, the state would have paid about $56 million annually to lease back the 11 buildings and that rent would have increased over time, officials said.

The California Legislative Analyst's Office said the deal would have equated to borrowing at a 10.2% interest rate -- double what the state pays for its general obligation bonds, officials said. Over 35 years, the sale and lease-back plan would cost California $6 billion more than state ownership, officials said.

Among the 11 buildings now spared from sale are the Attorney General Building and Justice Building in Sacramento, the Elihu M. Harris Building in Oakland, the San Francisco Civic Center Buildings, the Public Utilities Commission Building in San Francisco, and the Ronald Reagan State Building and new Junipero Serra State Building in Los Angeles.