DGS Absent At Hearing

The Department of General Services Director Ron Diedrich was requested to appear before today’s Assembly Accountability and Administrative Review informational hearing to answer questions surrounding the 11 state properties for sale, but did not appear. His absence prompted committee chair Assembly member Hector de la Torre, D-South Gate, to say, “It is not common for us to ask for a specific person (to appear) and not  have that person show up.” Instead, Deputy Secretary of State and Consumer Services Laura Zuniga appeared, addressing the committee’s questions about the details of the sale of the 11 state-owned properties.

De la Torre asked Zuniga to explain how the Schwarzenegger administration decided to sell the properties, what other state buildings were considered for sale, and why the 11 buildings were chosen to sell since they are all occupied and therefore, not surplus properties.

Zuniga said that after the Department of Real Estate division determined that the 11 properties would provide the best return for the state, the administration contacted several real estate brokers to get estimates of the properties. De la Torre asked Zuniga to provide the entire list of state-owned properties considered, and explain why certain properties were not selected. She replied that she would provide the information but did not have it with her.

De la Torre shared that the committee only discovered the sale of the properties when they were looking for information about how many properties the state leases. The 11 properties for sale were buried within another bill dealing with the sale of the Orange County fairgrounds.

DGS was asked to provide the information about state leases to the committee, and replied that the information would not be available until July 1, 2010. However, De la Torre said that while researching state leased property, the committee did receive confirmation from DGS that the state leases 16 million square feet and owns 39 million square feet of office space.

De la Torre asked Zuniga for the cost benefit analysis on the properties for sale, but Zuniga said that there was not one prepared yet. “How many billion dollar decisions does the administration undertake that do not have cost benefit analysis attached?” De la Torre asked Zuniga.

Yesterday the Legislative Analyst’s Office (LAO) published its analysis, critical of  the state sale-leaseback proposal. In the summary the LAO stated, “In our view, taking on long-term obligations—like the lease payments on these buildings—in exchange for one-time revenue to pay for current services is bad budgeting practice as it simply shifts costs to future years.”

During the public comments Chris Thornberg, founding principal of Beacon Economics and chief forecaster for the state controller appeared and offered information from his report titled, “A Bad Deal,” about the state property sale deal. Thornberg explained that some cost shifts in the deal make it more lucrative for potential buyers, but cost the state more. In the written report, Thornberg addressed a little-known appropriations clause about the deal: “Lastly, the Department of General Services noted that the lease could be subject to an appropriations clause, which meant that in the event the State fails to budget dollars for the leases, the leases are voided and the State cannot be held liable. In short, the State can simply walk away from their obligation if the State’s legislative bodies find it useful to do so.”

Several committee members expressed concern over what appeared to be a violation of Proposition 58, in that the state is trying to raise immediate funds to pay off current debt, but obligating more long term debt in doing so. De la Torre said there was no difference in this deal than issuing bonds to cover current expenses.

The committee recommended:

1) Require DGS to provide a detailed cost benefit analysis for leases lasting 30 years, even if DGS chooses not to sell the properties;

2) Require DGS to provide a cost benefit analysis for each of the buildings or properties;

3) Require the Legislative Analyst’s Office to conduct an analysis of the operating and maintenance costs.

“Some of the O&M costs are completely out of whack,” said de la Torre.

– Katy Grimes

Previous Cal Watchdog stories about the state property sales:

Critics slam state property sale

Fired official slams state ‘fire sale’

LAO report: Evaluating the Sale–Leaseback Proposal: Should the State Sell its …

Chris Thornberg’s report on the property sales: A Bad Deal