Written by The Business Journal Staff
(AP) — A lawsuit that aims to force California officials to sell 11 state properties to private investors for $2.3 billion and then have the state lease them back is set for trial Tuesday.
The sale was championed by former Gov. Arnold Schwarzenegger as a way to help the state plug a budget deficit. But Gov. Jerry Brown pulled the plug on the plan in 2011 after independent analysts said it would end up costing the state as much as $1.5 billion.
San Francisco Superior Court Judge Garrett Wong is scheduled to hear opening statements from attorneys for the state Department of General Services, which negotiated the sale, and California First LP, the buyer. The trial is expected to last several days.
California First, a consortium of investors led by a Texas real estate firm and a private equity firm based in Irvine, says a deal is a deal and the general services department has to honor the contract it entered into with California First for the properties in 2010.
“Our position remains that the state and California First entered into a binding contract,” said Angela Agrusa, an attorney for California First. “The state has to bear the consequences when it changes its mind.”
The state says the contract was terminated when California First failed to make a payment on time.
“We are confident that once the facts of the case are presented it will be clear that this lawsuit is a misguided effort to resurrect a long-defunct contract,” Brian Ferguson, a spokesman for the Department of General Services, said in a statement. “We have a strong case and firmly believe the state will prevail.”
A 2010 analysis by The Associated Press found it would cost the state far more to lease the buildings than to continue owning and maintaining them. The independent Legislative Analyst’s Office subsequently reached the same conclusion.
Brown said in 2011 that the sale amounted to a gigantic loan with interest payments and would be the “ultimate in kicking the can down the road.”
Among the properties in the sales contract are the Ronald Reagan State Building in Los Angeles and the Attorney General Building in Sacramento.