Selling Surplus Property Won’t Help the State’s General Fund Very Much

 Depending on the structure of Governor Arnold Schwarzenegger’s proposed sales of such state properties as San Quentin and various office buildings, any cash collected by the state can’t be used to balance the budget.

Under the terms of Proposition 60A, approved by voters in November 2004, proceeds from the sale of any state surplus property can only be used to pay the interest on $15 billion in budget-balancing bonds sought by the GOP governor and approved by voters in March of the same year.

Once the bonds are paid off – the Legislative Analyst estimated at the time that cash from the sale of surplus property would speed retirement of the 30-year notes by a “few months” – sale proceeds would be deposited in the state’s reserve account for emergencies.

As part of his revised budget, Schwarzenegger laid out an unprecedented proposal to sell numerous state assets. Among them: Los Angeles Memorial Coliseum, Cal-Expo in Sacramento, Del Mar racetrack near San Diego, the Ventura County fairgrounds and the Cow Palace in San Francisco.

Sales of those and other properties could yield between $600 million to $1 billion but proceeds wouldn’t appear for two to five years.

The executive summary for the plan is titled “State of California –surplus property proposal” which suggests the proposed sales of the property would fall under the strictures of Proposition 60A.

Also included in the plan are various sale and leaseback proposals for major state office buildings.

Among the plan’s suggestions are selling major buildings the state owns in Santa Rosa, San Jose, Los Angeles and Sacramento, among other locations, then leasing back the space from the new owner

Several of the buildings, including the Ronald Reagan building in Los Angeles and the Department of Justice in Sacramento were projects initiated by then Gov. Pete Wilson as part of an ambitious plan to reduce the state’s expenses from reliance on leased space by moving more of workers into state owned buildings.

In 1995, 70 percent of the state’s 21 million square feet of office space was leased at an annual cost of $270 million. Wilson won praise from the Legislative Analyst for his attempts to reduce those costs.

“In terms of timing and cost, leasing is generally the fastest way to procure needed space and has a relatively low short-term cost. Over the long term, however, leasing does not provide the benefits of acquiring a permanent asset and in most cases is significantly more costly than ownership,” the Legislative Analyst wrote in its assessment of Wilson’s proposed 1995-96 budget.  

Proposition 60A began as a small section of Proposition 60, a legislatively drafted open primary proposal which supporters of a rival open primary initiative, Proposition 62 claimed was placed on the ballot to confuse voters. The strategy is not uncommon.

Proposition 60 moved through the Legislature as Senate Constitutional Amendment 18. It contained the surplus property provision from the start of its legislative life. The measure’s author, then Sen. Ross Johnson, an Irvine Republican, now chairs the Fair Political Practices Commission

Proposition 62 backers filed a lawsuit, claiming Proposition 60 violated California’s single subject law, which requires ballot measures to focus on one issue. An appellate court agreed and broke the surplus property piece off, labeling it Proposition 60A.

It was approved by more than 73 percent of voters in the November 2004 election.

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