Gov. Jerry Brown announced today he is canceling a $2.3 billion sale of 11 state buildings that was planned by former Gov. Arnold Schwarzenegger.

“The sale and leaseback plan was short-sighted and would have cost taxpayers billions of dollars in the long run,” Brown said.

Under the proposal, the 11 building complexes in San Francisco, Santa Rosa, Oakland, Sacramento and Los Angeles would have been sold to a group of private investors and leased back to the state.

The sale was intended to help close the state’s budget gap by providing $1.2 billion in cash after bonds and expenses were paid off.

Brown said at a news conference in Sacramento that he will replace that $1.2 billion with an $830 million loan from special fund reserves and other revenues and cost savings.

Brown said the cancellation would save the state $6 billion over 35 years, according to the state legislative analyst.

“Selling and leasing back the state’s buildings for one-time gains is not prudent,” Brown said.

The nonpartisan legislative analyst’s report, issued in November, estimated the sale-leaseback plan would cost California up to $6 billion more in nominal terms, or $1.4 billion more in present-day value, than continued state ownership of the buildings over 35 years.

The investment group that sought to buy the buildings was California First LLC, a consortium led by Hines Interests, a Texas-based real estate firm, and Antarctica Capital Real Estate of Irvine.

“We are disappointed,” consortium spokesman Michael Bustamante said. “We had looked forward to assisting the state in addressing its fiscal crises and are available if our assistance is needed in the future.”

Brown spokeswoman Elizabeth Ashford said the governor’s office takes the position that the state will not have to pay the investors a cancellation penalty.

The structures included the State Building in San Francisco, which houses the California Supreme Court, as well as the Public Utilities Commission Building in San Francisco and state office buildings in Santa Rosa and Oakland.

The sale was challenged in a lawsuit filed by three former state building authority officials who were fired from their volunteer posts by Schwarzenegger last year after they questioned the deal.

The Schwarzenegger administration had hoped to complete the sale by December, but the legal challenge delayed the transaction until after Brown took office in January.

The lawsuit, which was pending before a state appeals court in San Jose, claimed the sale was unconstitutional and a waste of taxpayer funds.

“We are thrilled with the governor’s decision this morning,” said Joseph Cotchett, a lawyer for two former Los Angeles Building Authority members. “It is obviously the right thing to do and is excellent news for the citizens of the state of California.”

Louise Renne, a lawyer for fired San Francisco Building Authority member Donald Casper, said, “The litigation was fiercely fought by the parties, and we have always believed that in the end we would be victorious.”

State Controller John Chiang said that while selling the buildings would have provided immediate cash for the state, it would have cost Californians more in the long run.

State Senator Leland Yee, D-San Francisco, also applauded Brown’s action.

“His decision is not only fiscally responsible, but will save many jobs in San Francisco and throughout the state. Hundreds of California workers – including janitors and engineers – and their families can now breathe a sigh of relief,” Yee said.

Julia Cheever, Bay City News

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