This isn’t a tale about turkeys. It’s about pigs.
With America’s economy smashed, and American consumers no longer consuming, these are tough times for everybody, and that includes Wall Street investors and hedge funds. What are they supposed to do with the billions of dollars they have amassed courtesy of the US taxpayers? Wouldn’t it be great if they could figure out a way to help us while helping themselves?
In fact, that’s exactly what they’ve done. Here’s the plan: they are going to buy the symbols of our democracy and then lease or sell them back to us at an enormous profit.
And once again, we in California are at the leading edge of a new experiment in market forces, just like we were when we pioneered HMO's and electricity deregulation.
Last summer, California Governor Arnold Schwarzenegger and state lawmakers hired a private real estate broker to see how much they could get by selling assets owned by the People of California – specifically twenty-four buildings, some of which date back to the Golden Age of the Golden State. They include San Francisco’s historic Civic Center, built in 1922 and now home of the California Supreme Court; the acclaimed Public Utilities Commission building (only fitting, since they promoted energy deregulation); the Ronald Reagan State Building in Los Angeles; and the Department of Justice in Sacramento. Collectively, the buildings house a big hunk of California’s executive and judicial branches. (The Legislature was not for sale, possibly because it is already owned by business interests.)
The winning bid (PDF) came from a consortium of firms, composed of Hines Interests (based in Texas), Antarctica Capital Real Estate LLC (Mumbai, India), JP Morgan and some other firms who apparently have too few billions to bother naming. These kind folks have agreed to pay the state $2.33 billion to be “the steward” of our assets for us.
And thankfully they are not even going to insist on renaming California “Hines” or “Antarctica Capital” like the firms that sponsor stadiums demand.
In fact, they are calling themselves “California First,” which is highly comforting in that same way that all corporate sponsored initiatives on the ballot here are sponsored by people who you know are on your side because they call themselves “Californians for Lower Taxes and More Jobs.”
Of the $2 billion, $1.09 will go to pay off the bonds on those buildings (at which point the taxpayers would own them free and clear if we weren’t selling them to the consortium). The other $1.2 will go to the deficit.
I know what you’re thinking: gosh darn, the free market has come to the rescue once again!
Not so fast. That $1.2 billion, though a modest reduction in the deficit, would be good news except that the state still needs those buildings to house the judicial branch and other government institutions. So, under the arrangement, the taxpayers are required to pay the consortium top dollar to lease back the buildings for at least the next twenty years, with the option to renew for another thirty years. As it turns out, this is a guaranteed moneymaker for “California First.” On top of that, the taxpayers will have to pick up the property taxes on the properties.
According to the Legislative Analyst’s Office (also not part of the sale), this deal will cost California taxpayers about $6 billion more than it would cost to keep and maintain the buildings over the next three and a half decades.
Now I’m not one of those Wall Street geniuses who figured out how to price derivatives and credit default swaps and those other amazing if completely inexplicable securities. But if I’m understanding the math correctly, this just strikes me as possibly a massive mistake from the point of view of the public. It’s short-term thinking at its very worst – the kind that has hurt our country for awhile.
And then there’s the prospect of the pigs at the trough one again – this time on the misery they helped create. California gets two billion dollars and a bunch of Wall Street firms reap another bonanza. Maybe I’m too touchy about this, but the reason California and most other states are struggling with deficits of a monstrous magnitude is that Wall Street went off the deep end, taking our economy down with it – and we taxpayers had to throw it a very expensive life preserver.
Nor is it just about the money. Apparently there are some people who would destroy government – drown it in a bathtub, as one of them once said – and for them maybe the next best thing to killing it is selling pieces of it off. But there is something deeply unpatriotic about public assets falling into private hands. When it comes to historic California architecture recognized the world over, I just don’t think it should be owned by an investment firm in Mumbai, anymore than Goldman Sachs should own the Taj Mahal.
The idea has spread beyond California. Cash-crunched cities, counties and states across the nation are selling not only the assets but the attributes of government, from public libraries to parking meters, to investors at fire-sale prices.
Not everyone here in California is acquiescing to the pillaging. In a warm-up for this year’s yard sale, the California Legislature and the Governor hatched a plan in 2009 to sell to private insurance companies a block of lucrative, low risk insurance policies underwritten by the State Compensation Insurance Fund, a public company set up by the legislature in 1914 to provide workers comp coverage for businesses when private insurers refused to do so at fair and stable prices. The Legislature approved the sale of the policies, worth $1 billion, leaving employers (and injured employees) with a crippled company that would have had to raise rates dramatically. Seeing a waste of taxpayer dollars, California Insurance Commissioner Steve Poizner sued to block the plan – and with the case pending, the proposal is dead.
And California super trial lawyer Joseph Cotchett, who specializes in exposing and correcting complex and arcane financial shenanigans, filed a lawsuit earlier this month challenging the sale of the buildings, which was done in secret and hastily, without following state laws that govern the disposal of public assets.
Yesterday, the Los Angeles Times reports, Cotchett appeared in court with a 180 page document delivered anonymously to his office over the weekend. It showed that the sale of the public buildings included everything in them: desks, file cabinets, right down to the computers used by the courts.
There's probably information on those computers that would fetch a pretty penny on the market. I can think of a few insurance companies that would be willing to pay to know where they stand at the Supreme Court right now...