Buy High, Sell Low
By William Shughart • Friday October 15, 2010 5:12 AM PDT • 6 Comments
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!
Tags: Budget and Tax Policy, Business, California, Economics, Privatization, Property Rights, Socialism 
Hey, if a legislator’s votes are up for sale (and they are), why not buildings and other assets?
Time for a yard sale. Everything must go!
Steve Hogan | Oct 17, 2010 | Reply
Smells like desperation.
daddysteve | Oct 18, 2010 | Reply
The more important question is should they have the buildings and property regardless of ownership or rent. By that I mean that, while I have no idea what state “business” is conducted in the aforementioned “Civic Center”, but if that name implies what I think that it does, it is not the government’s business to find things for it’s citizens to do in their off-time.
When I served on the council of my town, I fought against, and lost the battle over buying the property for, and building a senior center, right next to the “recreation center.” It is not, I argued, the business of the town, at taxpayer expense, to drive other businesses out of our town (health clubs, gyms, etc.. etc..). But in classic big-government style, the buildings were build, and now our town is deep in dept as the market has crashed, and we do not have the tax revenues from the businesses that would otherwise be providing those services.
So again, I wonder just what takes place in the San Francisco civic Center, and if the state could save some big money by not only selling the building, but getting out of the business altogether.
BTW, I can’t help but think that the aforementioned “Cow palace” and “Coliseum” are neither “required” government buildings not legitimate government undertakings.
joe4liberty | Oct 19, 2010 | Reply
Joe4liberty makes a good point:
Civic centers, sports venues, fair grounds and convention centers, financed in whole or in part by the taxpayers are often sold as ways of generating revenue from tourists, visitors and fans from beyond city limits. The economic development benefits frequently are supported by bogus “economic impact” studies that purport to show that every dollar spent by out-of-towners will generate more than $1 in extra business for local hotels and restaurants as well as larger tax receipts for local governments. I have seen Keynesian-type multipliers of 6 or more, which are implausible on their face.
Many state and local governments clearly are engaged in ventures for which there is no “public purpose” justification. Selling such properties is one way of getting the public sector out of businesses they should have undertaken in the first place.
William Shughart | Oct 21, 2010 | Reply