Watch CBS News

Court Thwarts Schwarzenegger Plan To Sell Office Buildings

SAN JOSE (AP) - A California appeals court on Monday effectively barred the sale of state government buildings from proceeding until after Gov. Arnold Schwarzenegger leaves office, casting doubt over whether the deal will ever go through.

A three-judge panel in San Jose continued a stay on the sale until it hears arguments in court Jan. 23, three weeks after Democratic Gov-elect Jerry Brown is sworn into office.

The decision will stand unless the California Supreme Court overturns the appeals court decision in the next four days.

"Today's ruling was extraordinary for the taxpayers of California," said attorney Joseph Cotchett, who is representing plaintiffs Jerry Epstein and A. Redmond Doms.

Epstein and Doms, two former state building authority members, allege that the sale amounts to an unlawful gift of public funds and illegally bypassed the state Judicial Council, which has authority over buildings that house courts, as several of the for-sale state buildings do.

Their request to stop the sale initially was denied, but the appeals court issued a stay, temporarily halting the sale. Monday's decision sets the date for the hearing on the matter.

Schwarzenegger last year proposed selling 24 state-owned buildings to raise more than $1.2 billion to help close the state's general fund budget deficit. Under the deal, the state would continue to use the space by entering into a 20-year lease with the new owners.

The Republican governor ousted Epstein and Doms earlier this year after they asked the state to perform a cost-benefit analysis and questioned the long-term consequences for taxpayers. Don Casper, a third member who was ousted for questioning the sale, also signed on as a plaintiff in the lawsuit.

Several independent analyses found the sale and subsequent lease arrangement will end up costing taxpayers more money in the long run. Many of the buildings are close to being paid off.

Cotchett said the sale amounted to a revenue scheme that was completed through a murky bidding process. He noted that both the state controller and treasurer voted against it.

Cotchett said the sale also violated the state's ban on long-term borrowing to cover short-term budget deficits.

"I think this is a wonderful victory of the state of California today," he said.

Schwarzenegger was the proposal's biggest cheerleader. Last week, he made a last-minute plea to the California Supreme Court to allow the sale to go through.

Schwarzenegger's attorneys warned that unless the state can close escrow before the end of the year, "the sale may well disappear forever."

All seven members of the state's high court recused themselves from hearing his appeal and assigned seven state appellate judges to review the governor's petition.

Although the justices gave no reason, the high court is housed in the Earl Warren Building at the San Francisco Civic Center Complex, one of the state properties that would be sold. It presented a potential conflict of interest.

It was unclear whether the seven-member Supreme Court panel will issue a decision on the governor's petition before the appeals court hearing in late January. The deal remains in escrow.

The Department of General Services, which is overseen by a Schwarzenegger appointee, "is pleased the court has agreed to promptly hear the case," spokesman Eric Lamoureux said.

The state awarded the sale of the buildings — including the Ronald Reagan building in Los Angeles and the San Francisco Civic Center — to California First LLC, a consortium of investors led by a Texas real estate firm and a private equity firm based in Irvine, for $2.3 billion.

The state would net $1.2 billion after outstanding loans on the buildings are paid off.

California First remained interested in purchasing the properties, said the group's spokesman, Michael Bustamante, a former deputy chief of staff to Democratic Gov. Gray Davis.

"We are looking forward to the court favorably concluding on behalf of the state so we can close on this portfolio," he said.

Brown spokesman Evan Westrup said Brown will review the proposal after he is sworn in Jan. 3. As the state's attorney general, Brown declined to represent Schwarzenegger in the case.

(© 2010 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)


View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.