Supreme Court Terminated Governor’s Last-Ditch Petition to Sell State Properties


Governor Arnold Schwarzenegger and his campaign supporters received a major setback Dec. 28, when the California Supreme Court’s Acting Chief Justice Patricia Benke ruled against his petition and plan to complete the sale of 11 state office properties before leaving office.

The court’s ruling was a correct one. Gov. Schwarzenegger’s plan to sell 11 of the state’s iconic properties – including the Ronald Reagan building in Los Angeles and the San Francisco Civic Center – supposedly was to help pay off a portion of the State’s multi-billion dollar deficit and increasing debt load. 

Ironically, the debt is partially the result of the Governor’s “don’t raise taxes” rhetoric, while at the same time promoting and securing approval of record-amounts of General Obligation bonds.  Ironically, the governor’s bond promotion scheme was one of the primary factors contributing to the state’s sea of rising debt (California Bondage).

California’s Legislative Analyst’s Office, in two separate reports, characterized the deal as “poor fiscal policy.” It also indicated that the sale of the 11 office properties will wind up costing California as much as $6 billion, as proposed in the lease-back option favoring the buyers.  The $1.2 billion realized from the sale will only have a minimal effect on the overall deficit-ridden budget.  Critics argue that the budget cuts are just another means to make more room to issue the billions of dollars in Governor Schwarzenegger’s sponsored GO bonds and to entice the bond syndicators and investors to purchase more GO bonds.

According to Louise Renne, the attorney representing the plaintiffs, “The deal has a smell that just won’t quit.” The complaint filed with the court states “this deal is not only ‘imprudent’” but unwise. State Treasurer Bill Lockyer called the proposed sale “patently illegal.”

Whatever the case, The Public Law Group firm of Renne, Sloan, Holtzman and Sakai, and its clients, Jerry B. Epstein and A. Redmond Doms are to be commended for filing the suit to stop this sale for all the reasons stated in their case. Intervenor Donald A. Casper and Stan Moy, were both members of the San Francisco Building Authority, they were purportedly fired by the order of Governor Schwarzenegger for raising questions about the sale of the 11 properties. Casper was quoted in the press as being against the sale as it raised serious questions of waste of public property. The Authority is a three-person body established to plan, finance and oversee the construction and management of state office facilities in San Francisco.

According to a recent report in The Sacramento Bee, in 2006 the governor successfully promoted and got voters to approve $37.3 billion in publicly-financed General Obligation Bonds, for a myriad of “public” works projects and programs; i.e., water supply reliability, water for fish, drought and flood relief.  According to the State Treasurer’s Office, the total debt repayment obligation to the public will exceed $50 billion, when interest payments are included. The money to repay this debt comes directly out of the state’s General Fund; this is the same fund that has been subjected to the Governor’s draconian budget cuts in jobs, essential services and safety-net programs.

In late 2009, the Governor and his campaign contributors were successful in getting an $11 billion “Water Package” passed by the Legislature, which, if approved by the voters in 2012, will cost the public an estimated $20 billion. There again, many of his supporters with be the recipients of windfall profits from the syndication, sale, and revenues realized from the issuance of those bonds.  It doesn’t end there.

In 2003, in his first year of office, the Governor persuaded voters to approve two General Obligation bond propositions, which involved borrowing $15 billion to pay off some of the state’s budget debt, while purportedly placing a cap on spending. The end result was that the borrowing exacerbated the State’s deficit problems and the cap on spending just did not happen.

According to the Office of the Treasurer, in November 2010, the State’s total outstanding bond debt was $157.8 billion; $88.2 billion in principal and $69.5 billion in interest; about $128.4 billion are General Obligation Bonds. There is an additional $41.5 billion of authorized but unissued GO bonds.

It would be unfair to blame the Governor for all of the state’s deficit-ridden debt woes; however, it would be equally disingenuous not to impose blame for the debt he created. In 2007 – before the serious major fallout of the subprime mortgage scam and the Wall Street $700 billion banking bailout fiasco – California ranked as the world’s eighth-largest economy, according to the U.S. Department of Commerce.

California’s Gross Domestic Product (GDP) that year was around $1.8 trillion.  The GDP is the value of all goods and services produced in California. The state’s General Fund revenues in 2007 were around $120 billion.  In 2008, the economic output of the state of California was $1.847 trillion; indicating a marginal increase in growth. During that period, the state’s credit rating was one of the best in the nation.  In 2009, California’s credit rating was the lowest of all 50 states, amid the state government’s failure to close a $26 billion deficit that left the most-populous state issuing IOUs to creditors.

In 2010, according to a report by Bloomberg, California became the lowest rated U.S. state as Standard&Poor (S&P) lowered California’s GO bond rating one grade because Governor Arnold Schwarzenegger and the lawmakers failed to close a record budget deficit. S&P downgraded California’s credit rating to A-minus. S&P maintained its negative outlook on the state’s $63.9 billion GO debt, indicating more downgrades are possible. Currently, is still ranked by S&P as A-minus.

As a result of the Governor’s “fiscal austerity” and “GO bond saturation” California is paying more money each time the state issues GO bonds. For example, as of December 2009, California had $83.5 billion of outstanding long-term debt; 97.3% is fixed rate debt; $63.9 billion was GO bond debt.

 In Fiscal Year (FY) 2010, the California State Treasurer’s office estimated that the amount of revenue in the General Fund at $88.09 billion, and the estimated debt service on the existing $63.9 billion in outstanding bonds (includes principle plus interest), and estimated the debt service on those bonds at $6.09 billion; about seven (7) percent of the General Fund’s annual revenue stream.   However, in FY 2013, estimated revenue in the General Fund is projected at $91.6 billion, and the estimated total debt service on the on the GO bonds at $10.06 billion; 10.98 percent of the General Fund.

GO bonds are a form of long-term borrowing in which the state issues municipal securities and pledges the full faith and credit to their repayment. The California Constitution set repayment of GO debt before all other obligations of the state except those for K-14 education.

The repayment obligation associated with the issuance of such bonds is derived from the State’s deficit ridden General Fund.  Draconian budget cuts have and continue to be made as a result of increased debt load, fending off new taxes, and the overall downturn in the economy have fueled the budget crisis, contributing to the proposed sale of the 11 properties in question.

Still yet unclear are the links – financial, political or otherwise – between the increasing GO bond debt, annual repayment obligations, the increased costs associated with State borrowing, the primary promoters/backers/syndicators and beneficiaries involved in the proposed sale of the state properties. However, a cursory review of Governor Schwarzenegger’s campaign disclosure statement indicate that significant sums of money came from supporters that apparently benefited from the issuances of the GO bonds. Also, it appears that the Governor re-funneled a sizeable portion of his campaign funds back into the California Dream Team Budget Reform Committee; aimed at cutting the budget.

Critics claim that the Governor’s motive to sell the buildings is a kickback to his campaign contributors.  In his run for Governor Schwarzenegger stated that he would not take campaign contributions from big vested interests.

The governor was quoted on August 31, 2003 as saying, “Any of those kinds of real, big, powerful, special interests, if you take money from them, you owe them something.”

According to, Arnold has raised $143,839,604 up through June 21, 2010, not including personal money given to his committees. The major contributors listed are real estate, development, construction, finance and insurance entities.

Raising nearly $144 million from private contributors implies there more than a coincidental link between the campaign contributions, the sale of the property and the windfall profits that have and continued to be realized by the Governor’s supporters. Critics argue that the sale of the 11 properties, along with the wholesale-General Obligation bond bonanza, which taxpayers are responsible to repay, makes the Bernie Madoff Ponzie scam look like mere child’s play.

One thing is certain. California’s debt has Increased dramatically in the last decade.  Since FY 1999-2000, annual debt service has increased 143% while General Fund revenues have increased only 22%.  

Despite the extraordinary amount of debt issued in 2009, the State still has $47.48 billion of voter authorized but unissued GO bonds, and $10.2 billion of Public Works Board lease revenue bonds authorized by the Legislature and unissued.

On Dec. 29, Governor-elect Jerry Brown announced that the State’s projected 2011-2012 budget deficit is estimated at about $35 billion, one-third of the projected General Fund revenues. It is apparent that one way to cut the budget is to stop issuing GO bonds or to simply stop issuing any more bonds until the budget crisis is remediated. Also, in the case of estimated $19 billion in water- and water-related GO bonds issued between 2000 and 2006, the water beneficiaries, such as State Water Project contractors, should be required to repay the costs associated with water supply reliability, conservation, planning and mitigation, which are classified under the terms of their contracts, as reimbursable costs.


Patrick Porgans and author Lloyd G. Carter are involved in publishing a series of articles, entitled: “Doubts About the Drought.” For more information you can Google Hay! Doubts About the Drought, or visit the following websites; and


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