Buy High, Sell Low

News item: “California to Sell 24 Government Buildings for $2.3 Billion” (AP, October 12, 2010).

As a way of helping plug the State of California’s now-chronic budget deficit, this headline is welcome news. Among the state-owned properties on the auction block are LA’s Ronald Reagan State Building and San Francisco’s Civic Center. I have on several occasions during the past decade recommended such a “yard sale”, a period during which Sacramento has almost continuously overspent its tax revenue.

The “deal”, according to some of its supporters, will enable the legislature to retire about $1 billion in bonds still owed on the 24 properties, leaving another $1.2 billion to stanch the flow of red ink in the state’s general fund.

Critics allege, on the other hand, that the lease-back arrangement with private purchasers exposes the state’s taxpayers to somewhere between $1.5 billion and $5.2 billion over the next 20 or 30 years for renting space they previously “owned”.

Those numbers, it seems to me, are preposterous. Until now, California’s taxpayers have been on the hook, not only for the capital costs of those 24 buildings, but for the maintenance of the buildings and grounds plus security for the government employees who work there. It cannot be the case that the private costs of supplying those same services are equal to or anywhere close to those incurred by California’s Department of General Services. (The excess burden on the taxpayers of government employees’ salaries and fringe benefits, including health care and pensions, already are well-known.)

The point is that the selling of publicly owned properties to private interests is win-win. It gets California’s state government out of businesses it should never have been in the first place. The tragedy is that the state waited until real estate values had hit bottom, instead of taking action ten years ago, when I first suggested this solution to its looming budget problems.

The obvious question is, why stop at 24 government buildings? The State of California and its local government entities own and operate many more very valuable properties, including San Francisco’s Cow Palace and LA’s Coliseum. Sell baby, sell!

William F. Shughart II is Research Fellow and Senior Fellow at the Independent Institute, the J. Fish Smith Professor in Public Choice at Utah State University, past President of the Southern Economic Association, and editor of the Independent book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.
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