Raw Deal

Proof yet again that nobody could have possibly predicted that putting an aging B-movie actor in charge of our state government for seven years would be the most awesome thing our enlightened voters could ever have done. As if we hadn't already been warned:

As the California economy roared in the 1990s and tax revenues poured into a treasury overseen by Gov. Pete Wilson, the state laid plans for a series of new office buildings in Sacramento to spare itself from paying rent to other landlords.

Barely a decade later, the Schwarzenegger administration is launching a process to sell many of the same buildings that were originally touted as long-term money savers for taxpayers. The goal today is more immediate: pay off debt and steer cash into the state's depleted general fund. It's among a variety of short-term crisis solutions that include selling surplus state property, moves also being undertaken in cash-strapped Arizona.

In California, 11 state-owned sites with an estimated value of almost $2 billion will be listed for sale in early 2010 to pay off about $1.4 billion in bonds and net another $600 million "to support other critical state government programs," said state Department of General Services spokesman Eric Lamoureux.

They want to move that much property? In today's commercial real estate market? Bwahahahahahahaha!!!

The Moody's/REAL Commercial Property Price Indices fell 5.1 percent in July from the month before, Moody's said today in a statement. The index is down almost 39 percent from its October 2007 peak. The decline in June was 1 percent.

Commercial property sales this year may fall to an 18-year low . . . Office sale prices fell 23 percent from a year ago in New York, 27 percent in San Francisco and 22 percent in Washington, according to the report.

But wait. It gets even better:

Specifically, the state is proposing a so-called "sale/leaseback" deal in which buyers of state buildings would rent them to the state afterward.

"We intend to maintain 100 percent occupancy in the buildings just as we have today," said Lamoureux, whose department manages state buildings. "We're just looking to sell the property and lease back over an extended term, probably along the line of 20 years or so."

Brokers say the lease-back provision is likely to stir interest among risk-averse investors known in the trade as "coupon clippers." Those are big institutional investors such as pension funds and insurance companies.

And we know how well those institutions are faring these days:

Public pension funds across the U.S. are hiding the size of a crisis that's been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy.

The paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year.

The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.

We need to look no further than our own backyard to see how awesomely healthy these coupon clippers are nowadays:

The two largest pension funds in California, the California Public Employeesí Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS), have lost billions of dollars in value. Hundreds of thousands of retiring state employees and teachers now face the stark choice of accepting much reduced pension checks or working past their retirement age.

CalPERS is the largest pension fund in the US and the fourth largest in the world. At its height in October 2007 it had $260 billion in assets, comparable to the GDP of Poland, Indonesia or Denmark. At the end of 2008 CalPERS was worth $186 billion, one of its worst annual declines since the fund's inception in 1932. It is one of the latest casualties of the financial collapse on Wall Street.

Honestly. In today's craptastic CRE market, no lending institution in its right mind is going to offer anything but a debt-equity swap for these piles, so if Ahnuld really wants to move these properties, the red pen will need to come out, with steep discounts and writedowns the result. Better yet, you the taxpayer will continue to pay for these buildings, which you no longer owe, for the next 20 years (or longer) via monthly rent checks made out to some institutional lending firm that's most likely already on the federal dole. Here's the money shot:

Every time I think it would be impossible for this governor [to] add a new high to his list moronic decisions, he proves me wrong. Let's see, we are going to sell our State buildings at the bottom of the market, producing revenue that will be burned up within one year . . . Following that, the State becomes a tenant in perpetuity, paying ever increasing rates when the market rebounds. He must have produced this idea while sitting in the tub, smoking a cheap stogie and admiring his testicles.

Welcome to California: The Shriveled Testicle State.

---Vitelius