The lawsuit claims the sale to a group of private investors, due to be completed in mid-December, is illegal and unconstitutional. It alleges the sale will cost taxpayers at least millions and possibly a billion dollars.
“It’s a gift of public funds. It’s outrageous,” said attorney Joseph Cotchett of Burlingame, who represents the two plaintiffs.
“We are asking the court to stop this sell-off of California’s magnificent buildings.”
The structures include the State Building and Public Utilities Commission Building in San Francisco, the Elihu Harris Building in Oakland, the Judge Joseph Rattigan Building in Santa Rosa, and seven other state office buildings in Sacramento and Los Angeles.
The sale was authorized by the Legislature in 2009 and is one of several emergency measures aimed at closing a $20 billion budget gap in the current fiscal year.
The $2.3 billion sale is expected to add $1.3 billion to the state’s general fund after $1 billion in remaining bond debt on the buildings is paid off. Offices in the buildings would be rented back to the state for the next 20 years.
The plaintiffs in the case are former Los Angeles State Building Authority President Jerry Epstein and member Redmond Doms, who were fired by Schwarzenegger this spring after they objected to the sale.
Their lawsuit has two legal claims.
First, it alleges the sale of two court buildings violates a law giving the California Judicial Council authority and control over state appeals court facilities.
The two court buildings are the San Francisco State Building, which houses the headquarters of the California Supreme Court and a regional appeals court, and the Ronald Reagan State Building in Los Angeles, which contains a Supreme Court courtroom and an appeals court.
The second claim is that the sale amounts to an unconstitutional gift of public funds.
“Once the sale closes, the sate will no longer own the properties at issue and will be contractually obligated, under oppressive terms, to pay a private landlord above-market rent for a period of at least 20 years, costing taxpayers billions in the long-term,” the lawsuit alleges.
The suit cites a report in which the Legislative Analyst’s Office said earlier this month that the sale-leaseback plan, while providing a one-time infusion of cash, will result in a net loss to the state of $644 million in 20 years and $1.4 billion in 35 years.
The state Department of General Services, using a different method of calculation, estimated the sale would produce a gain of $2 million in 20 years and a loss of $253 million in 30 years.
Schwarzenegger’s office referred questions to department spokesman Eric Lamoureux, who said he could not comment on a pending lawsuit.
But Lamoureux said that in general, “The purpose of the sale is to generate revenue for the general fund to prevent further program cuts and tax increases.”
Cotchett said he hoped to obtain a Superior Court hearing within about two weeks on a request for preliminary injunction blocking the sale.
The General Services Department awarded the sale last month to California First LLC, a partnership led by Hines Interests, a Texas-based international real estate firm, and Antarctica Capital Real Estate of Irvine.
In addition to Schwarzenegger, the department and Acting Director Ron Diedrich are named as defendants in the lawsuit.
Julia Cheever, Bay City News