Wednesday, March 4, 2015




          California has bled many millions of dollars because of the myriad blunders by former Gov. Arnold Schwarzenegger, who probably should have remained a muscleman actor and never ventured into politics.

          Spending has barely begun on the high speed rail project he enthusiastically backed without worrying about troublesome details like its precise route or whether it can ever attain the ultra-high speeds he promised. Many dozens more millions of dollars have been doled out – with lots more to come – to build refueling stations for hydrogen fuel cell vehicles long before anyone knows whether consumers will buy them.

          The $15 billion deficit-payment bond issue Schwarzenegger pushed on California voters ended up costing the state almost twice that, when interest was counted.

          But at least the disastrous real estate deal the fading movie star pushed is at last dead. True, it has now cost the state more than $24 million without producing even one job or one dime, but at least it is gone.

          This deal began as a high-stakes auction in 2009, when Schwarzenegger cast about desperately for solutions to the state’s seemingly perpetual budget shortfalls. As he looked for revenue sources, Schwarzenegger pounced on 11of the state’s trademark buildings, including the Public Utilities Commission building in San Francisco, the Justice Department in Sacramento, the Supreme Court building in San Francisco and the pink granite Ronald Reagan State Building in Los Angeles.

          The top bid deemed credible in Arnold’s auction amounted to $2.3 billion (just $600 million in immediate cash) for the emblematic structures. The rest of the money was to come in the form of savings on things like janitorial services and power and gas bills.

     Schwarzenegger-appointed spokesmen for the state Department of General Services pronounced the deal “fantastic,” to use one of the ex-governor’s favorite hollow expressions, saying it would help get the state out of its financial hole without costing much. But other state economists at the same time estimated the deal would cost taxpayers $2.8 billion over 30 years as the state rented back its own buildings.

          It was never clear how $600 million could do much against a cash shortage variously estimated between $27 billion and $45 billion. So, like his 2004 bond issue that bought nothing, this was another of the many short-cuts Schwarzenegger tried to use to solve problems without making sacrifices.

          Realizing that incoming Gov. Jerry Brown had pegged the real estate deal as a disaster during his 2010 campaign, Schwarzenegger tried to sign documents cementing it during his term’s final hours. But he missed a line or two, allowing Brown to cancel the deal within his first few weeks in office.

          This rankled the private real estate firms that had combined on the winning bid and expected to milk big profits from the state. The firms, through a partnership called California First, headed by the Irvine-based ACRE LLC and Hines Inc. of Houston, TX, sued to keep the sale alive, and it festered on for four years.

          A court date arrived at last in December, but the judge wanted no part of any testimony. Instead, he ordered the sides into negotiations, producing a $24 million settlement last month.

          So the state escaped from this one with a loss of less than 1 percent of what was projected if the deal had gone through, plus legal fees. Meanwhile, it continues to operate the buildings, which remain prominent symbols of state government.

          At the same time, Brown’s tactics over the last four years, including the Proposition 30 tax increases he pushed successfully, have eliminated the annual budget shortage despite constant pressure from the Legislature for more spending. There’s also been some help from the recovering economy.

          One lesson here is age-old: It’s generally far better to make some momentary sacrifices than to sell off a birthright, and it’s especially bad to sell off anything important just when the market for it is bottoming out.

    No one has explained how even the shallow-minded Schwarzenegger could miss this salient point.

    The pity is that even as this Arnold-era blunder ends at last, others keep right on losing money.


    Email Thomas Elias at His book, "The Burzynski Breakthrough, The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, visit

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