Schwarzenegger Sued Over Sale of Government Buildings

Arnold Schwarzenegger is seeking to ease California's massive budget deficit by selling off state buildings to private investors, but a lawsuit filed Tuesday is attempting to block the sale.

Schwarzenegger's administration has fired government officials who requested more information on the controversial deal, court papers note.

The lawsuit alleges that Gov. Schwarzenegger is unlawfully trying to sell 11 state buildings--including the Ronald Reagan building in downtown L.A., the San Francisco Civic Center, and the Department of Justice Building and the Attorney General Building in Sacramento--to the investment group California First, LLC.

As California faced a $19 billion budget shortfall, Schwarzenegger moved forward earlier this year with plans to sell the buildings to the highest bidder and lease the facilities back from the buyer. The state Public Works Board approved the sale on Tuesday, with expected profits of $1.2 to $1.3 billion for the state in this fiscal year.

The move will cost taxpayers $646 million over the next 20 years, according to an analysis published last week by the California Legislative Analyst's Office. The California Department of General Services, which is handling the sale (and whose acting director is named as a defendant in the lawsuit) had estimated the sale would turn a $2 million profit over the first 20 years.

The state legislature granted the Dept. of General Services (DGS) authority to make the sale in its 2009 budget act, which was signed by Schwarzenegger that summer. The sale is now partially complete, and California First is slated to make a payment of $50 million to the state on Wednesday, according to DGS.

Court papers allege that one of the lead firms in California First is is based in Mumbai; the Schwarzenegger administration had identified leading investors as being based in Texas, California, and New York.

The suit is being brought by two former members of the Los Angeles State Building Authority, who opposed Schwarzenegger's sale-leaseback deal.

DGS fired one of the plaintiffs, Jerry Epstein, along with other members of local building authorities who requested more information on the deal, according to court papers filed Tuesday. Epstein later penned an op-ed in the L.A. Times criticizing the deal.

Epstein, formerly president of the LA State Building Authority, had requested information on projected net proceeds from the sale-leaseback deal. Three weeks later, he says, Acting DGS Director Ron Diedrich fired him. Court papers also note that members of the San Francisco State Building Authority were also fired as has been reported by news outlets.

The suit alleges that Schwarzenegger ignored longstanding building-sale procedures by keeping the bidding process secret; it also alleges that Schwarzenegger and Diedrich unlawfully circumvented the approval of the California Judicial Council in moving forward with the sale of three buildings that house state appellate courts.

DGS, to which Schwarzenegger's office directed me for comment, could not be reached immediately.

UPDATE: DGS declined to comment. A spokesman said DGS does not comment on pending lawsuits.