Another Legal Confrontation Over the Sale of State Property

Eclipsed by the Schwarzenegger administration’s proposed $2.3 billion sale of 11 office buildings to a group of private investors is a similar effort to sell the Orange County Fairgrounds in Costa Mesa.

And like the sale of the office buildings – stayed at least through December 29 by an appellate judge on December 13 – the deal inked between the state and Facilities Management West to sell the fairgrounds for $96 million is being challenged in court.

A restraining order has been granted by the Orange County Superior Court, temporarily blocking the fairgrounds sale.  Another hearing is set for December 15 on issuing a preliminary injunction.

The Schwarzenegger administration says that both transactions are on hold  — in likelihood until new Gov. Jerry Brown takes office — because of the litigation.

In court filings for both proposed sales, the Schwarzenegger administration has defended the propriety of its actions and said the sales are critical to helping close the massive gap the state faces between spending commitments and revenue.

“The legislation which directed the sale of the property was adopted as urgency legislation intended to help addre4ss a current fiscal crisis, lawyers for Attorney General Jerry Brown in defense of the fairgrounds sale.

“Any further delay in the completion of the proposed sale will simply add to the harm suffered by the general public.”

In November, Brown described the sale of the 11 state office buildings as “not prudent.”

An initial challenge to the fairgrounds sale was filed by Tel Phil, which has operated a swap meet on the property since 1969, paying the 32^nd District Agricultural Association more than $108 million in rent over the past 41 years, according to the lawsuit.

On December 13, Assemblyman Jose Solorio, a Santa Ana Democrat, and Sen. Lou Correa, also a Santa Ana Democrat, filed a second lawsuit challenging the sale.

Among the allegations are that the state Department of General Services did not seek an outside appraisal of the fairground’s worth before seeking bid to purchase it.

Like the Tel Phil lawsuit, Solorio and Correa allege that the sale is contingent on the approval of the Legislature, which was out of session when the department alerted them of the deal’s consummation on October 19.

Solorio has been critical of the fairgrounds transaction and introduced a bill on the first day of the new legislative session that would both dictate how fair market value is assessed and clarify that any sale is contingent on the Legislature’s approval.

The purchaser of the fairgrounds property, Facilities Management West says in its objection to the court issuing a preliminary injunction that Tel Phil and its president, Jeffrey Teller, is a disgruntled losing bidder.

“Petitioners, unsuccessful bidders, now seek to block the sale, not for the public interest as determined by the Legislature but for their own pecuniary interests – so the petitioners can purchase the property for a lower price and/or so Jeffrey Teller can continue to reap enormous profits from operating his swap meet by killing the sale.”

The state’s sale process was “fair and in full compliance with the law,” Facilities Management West contends.

Although Teller’s lawsuit does show Tel Phil bidding on the property, the filing says the company did so in protest over the proposed sale. Tel phil also disputes making “enormous profits” now or in teh future and notes that the state is financing the deal over 30 years and only a $20 million downpayment will be scored against the state’s current budget shortfall.

That is one-tenth of 1 percent of the estimated $25.4 billion hole that will accrue over 18 months if lawmakers and the governor do nothing to fill it.

When the state first tried to sell the fairgrounds it rejected all bids because the highest offer was for $56.5 million. Facilities Management West returned with a $96 million bid with a 55-yar leaseback, closer to the $100 million the state sought to pocket from the sale.

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