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State pays $24M to settle lawsuit over building sales

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POSTED February 22, 2015 6:33 p.m.

SAN FRANCISCO (AP) — California officials announced Sunday an agreement to pay $24 million to investors suing the state over Gov. Jerry Brown’s scuttling of a $2.3 billion lease-back plan to sell 11 state properties.

Former Gov. Arnold Schwarzenegger championed the sale and lease-back program as way to help California plug a gaping budget deficit. But Brown halted the plan in 2011 after independent analysts said it could cost the state as much as $1.5 billion.

“The Schwarzenegger administration’s short-sighted plan to sell state buildings would have cost taxpayers billions of dollars and was a bad deal from the start,” said Brian Ferguson, a spokesman for the state’s Department of General Services, which is responsible for the maintenance of the buildings. “This puts an immediate end to a prolonged, frivolous legal dispute.”

An investment group led by a Texas real estate firm and an Irvine-based private equity company called California First LP then filed a lawsuit to force the sale. A San Francisco Superior Court judge started a bench trial in December and after considering the evidence, but delayed the proceedings amid a dispute over evidence. Both sides then agreed to submit the case to an arbitrator and during negotiations last week reached an agreement, according to California First’s attorney Angela Agrusa.

“It’s an excellent outcome,” Agrusa said. “California First is obviously pleased with the settlement.”

The dispute began after The Associated Press in 2010 found the sale would cost the state far more in lease payments than retaining ownership. The Legislative Analyst’s Office subsequently reached the same conclusion and that’s when Brown decided not to go through with the deal.

In defending against the lawsuit, the state had argued that the investors had missed a payment. California First denied that charge and argued that the state broke a binding contract.

“The governor changed his mind,” Agrusa said at the opening of the trial on Dec. 2. “His personal viewpoint, his policy reason is not a legal reason to breach a contract.”

In killing the deal, 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.

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