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Sell State Assets to Close Budget Gap

Gov. Schwarzenegger, facing new mountains of red ink, is trying to drum up support for his proposal to reform the state’s budget process.

With up to $20 billion in red ink forecast, Schwarzenegger has requested legislative authority to borrow $3.3 billion by floating a new bond issue, and he wants to postpone a debt payment of $1.5 billion. His proposed 2008 budget also includes a list of spending cuts.

There is another option. California is sitting on a gold mine of surplus property that could be sold for ready cash. According to the real estate division of the Department of General Services, the state government’s landlord, on Jan. 2, taxpayers owned 22,727 buildings and more than 6.7 million acres of land at 2,313 sites.

At the end of 2002, the most recent year for which information is available, 55 state-owned properties comprising nearly 4,811 acres had been declared surplus. Nevertheless, as of last October, bids were actively being solicited on just three properties: a Highway Patrol station in the South Lake Tahoe area, 2.7 acres of a 20-acre parcel at the Los Angeles Reception Center and 17.6 acres in Santa Clara County at the Bay Area Research and Extension Center.

The last surplus-property transaction of any significance appears to have taken place in fiscal year 2002, when the state sold 152 acres in Santa Clara County for $149 million. That parcel was part of a 292-acre property that had been declared surplus in 1996.

To be fair, disposal can be held up by bureaucracy or entangled in long-term leases. But nothing much seems to have changed since 2000, when the state auditor criticized the department for failing to dispose in a timely manner of surplus property worth millions of dollars.

Disposing of “surplus” property is just a starting point. State and local governments nationwide own and often operate professional sports venues, convention centers and other public facilities that could produce billions in revenue if sold or leased to the private sector.

Because of the real estate bust, this is not the best time to sell. That’s the price of failing to act when land values were high.

But California and other states facing budget deficits don’t have to make a profit; they have to put their financial houses in order. Disposing of surplus property is a partial, short-run solution. The longer term answer is budget reform and spending restraint.

William F. Shughart II is Research Director and Senior Fellow at the Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, Editor-in-Chief of Public Choice, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.

From William F. Shughart II
TAXING CHOICE: The Predatory Politics of Fiscal Discrimination
So-called “sin taxes”—the taxing of certain products, like alcohol and tobacco, that are deemed to be “politically incorrect”—have long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such “sinful” products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?