Jerry Brown cancels sale of state properties planned to help address California’s budget crisis

Reporting from Sacramento

Gov. Jerry Brown pulled the plug Wednesday on the planned sale of two dozen state office buildings, calling the proposal negotiated by his predecessor a raw deal for taxpayers.

Brown’s announcement came after the state had struck an agreement to sell 11 properties, including the Ronald Reagan State Building in downtown Los Angeles, and rent space in the same buildings for decades. The transaction would have generated $1.2 billion to help balance California’s budget, but independent experts had warned that it would cost taxpayers far more over time.

The governor said the plan was essentially “a gigantic loan with interest payments that equal … over 10% every year.”

He said he would replace the lost proceeds largely with money borrowed from special state accounts. Those funds would have to be repaid, but the arrangement would cost taxpayers less.

Brown also suggested that he would review other pending sales planned by former Gov. Arnold Schwarzenegger, including those of the Orange County and Del Mar fairgrounds.

“This is not the best time to be selling real estate,” Brown said.

The state had agreed to sell its properties to a group of politically connected private investors. Schwarzenegger’s administration had pushed to finalize the deal before he left office in early January. A lawsuit by two former building commissioners whom Schwarzenegger had ousted, however, stalled the transaction long enough to allow Brown to have the final say.

“We are thrilled,” said Anne-Marie Murphy, an attorney for the former commissioners. “The deal was unprecedented in the history of California. We have never in the past resorted to selling off the crown jewels of the state in this manner.”

Among the complexes set to be sold were the San Francisco home of the California Supreme Court, the attorney general’s offices in Sacramento and the Junipero Serra State Building in Los Angeles.

Opposition to the sales had been building for months. A highly critical November report from the Legislature’s nonpartisan budget examiner said the deal amounted to a costly 10% loan. The state’s top two fiscal officials, the treasurer and controller, both condemned the proposal. Democrats in the Legislature, who approved the sale in 2009, later disavowed it.

Senate President Pro Tem Darrell Steinberg (D-Sacramento) said Wednesday that the plan was a “fiscally irresponsible idea.”

Michael Bustamante, a spokesman for the investor group, California First, said in a statement that Brown’s decision was disappointing.

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

Brown said no government programs would be affected by his plan to borrow from state accounts to cover the budget shortfall created by his decision not to sell the state properties. The money would come with low interest rates and be repaid by 2014, he said.

The maneuver is “fiscally prudent,” Brown said, costing taxpayers much less than selling the buildings, which he dismissed as “the ultimate in kicking the can down the road.”

Opponents of the Del Mar and Orange County fairgrounds sales found new hope in Brown’s reluctance to sell state assets.

“I always thought wiser minds would prevail,” said Del Mar Fairgrounds Chief Executive Tim Fennell, “and now I think they have.”

In Orange County, Assemblyman Jose Solorio (D-Santa Ana) said in a statement that Brown’s comments were “a good sign.”

The Orange County sale is currently tied up in court.

shane.goldmacher@latimes.com

Times staff writer Tony Perry in San Diego contributed to this report.