Schwarzenegger’s Plan to Sell Landmarks to Erase California Budget Deficit, Essay Example

One of the major problems the Californian State Government is faced with nowadays is the budget deficit of $24.3 billion. The problem has reached a critical point when on July 1^st, 2009 Governor Arnold Schwarzenegger proclaimed a fiscal emergency, following through on his promise to veto any budget bills that failed to solve for the entire deficit, meanwhile announcing that “he will not sign any legislation until a solution for the entire budget deficit is in place” (Governor Declares State of Emergency Due to Budget Impasse, 2009). One of the earlier solutions put forward by the Governor in May this year was to put some of the California state’s biggest landmarks up for sale in order to raise a substantial sum of money. Among the proposed landmarks for sale were “San Quentin Prison, which could prospectively bring in $1 billion in today’s market”, and Los Angeles Memorial Coliseum, the price tag for which was not determined yet (Young, 2009). I personally do not go along with such kind of a proposed plan of action because, most importantly, it seems unlikely to solve the immediate budget deficit problem for a couple of reasons, which will be looked at further in this paper.

When talking about the sale of highly popular and profitably situated landmarks, first of all, to my mind, it should be noted that the timing for such kind of operations is inappropriately chosen. Due to the world’s financial crisis “commercial properties in California have lost 25 percent to 35 percent of their value since the market peaked several years ago” (Young, 2009). For this reason the landmarks, though potentially being sold for sufficient prices, would bring fewer revenues than expected as the current real estate market is now in the favor of people looking to buy these properties and not in the favor of the state. In the end, if you ask me, the state will gain much less in comparison to potential revenues the sold landmark and government offices could bring, which, in its case, proves once again that selling  landmarks “in the middle of a recession and a downturn in real estate is a questionable proposition” (Sakamoto, 2009).

Secondly, when considering the sale of landmarks for the purpose of covering the immediate budget deficit, it is obvious, to my mind, that for such an event to happen a certain amount of time will be needed to complete the sales. Taking in consideration the significance and the estimated price of the landmarks, it means that it would at least take a couple of years to get all the necessary paperwork done, both parties’ obligations fulfilled and all the details arranged. And though the potential state’s revenues should not be underestimated, they would still have nothing to do with California’s immediate budget crisis (Sakamoto, 2009). My point here is that in order to fight the deficit the legislators have to come up with new steady revenue sources similar to those proposed in the 2009-2010 California State Budget like Increase Alcohol and Excise Taxes by 5 Cents a Drink or Oil Severance Tax (Revenue Estimates, 2009), rather than relying on one-time property sales.

Finally, weighing the possible financial consequences of the landmarks’ sale, it is important to keep in mind that the Governor’s plan was to “sell off some property outright, sell office buildings and then rent them back from the new landlords, and lease some state land to developers” (Young, 2009). From this presupposition a logical question arises: how much money would the state have to spend in order to cover all the rearranging costs and accompanying expenses and would they outweigh the gained revenues. Take, for example, the possible sale of the San Quentin Prison – the home for the California’s death row: 5,150 prison’s inmates would have to be moved somewhere – “a process that could cost many millions of dollars and eat into any proceeds from San Quentin’s sale” (Sakamoto, 2009). Furthermore, the legislators also estimate that selling as many as 11 state buildings could generate $661 million. “But the lease-back strategy also could make the state vulnerable to future rent increases that would insert another unpredictable element into its budget process” (Young, 2009). In other words, from the above mentioned examples it is evident the sale of state landmarks could be considered helpless in case of fighting the immediate budget deficit for the reason of potentially high expenses, associated with the rearrangement and reconstruction of the services provided by that particular landmarks.

In conclusion I would like to point out that in order to solve California’s budget deficit problem, urgent measures should be taken. However, these measures should be well-weighted and thought through with an emphasis on steady revenue sources, rather that one-time income. For this reason, Governor Schwarzenegger’s plan to sell the state landmarks in order to fight immediate budget deficit seems inappropriate in the current financial and economic environment because of the lack of long-term financial benefits and possible expenditures in the field of services rearrangement.

References

Governor Declares State of Emergency Due to Budget Impasse. (2009, July). Retrieved July 7^th, 2009, from http://gov.ca.gov/issue/state-budget/

Revenue Estimates. (2009). Budget Summary 2009-2010. Retrieved July 7^th, 2009, from http://www.ebudget.ca.gov/BudgetSummary/BSS/BSS.html

Sakamoto, Kimberlee. (2009). “Plan to Sell off California Landmarks is Questioned”. Associated Press. Retrieved July 6^th, 2009, from http://www.kron.com/News/ArticleView/tabid/298/smid/1126/ArticleID/1692/reftab/463/t/Plan-to-Sell-off-California-Landmarks-is-Questioned/Default.aspx

Young, Samantha. (2009). “Plan to Sell Off California Landmarks to Erase Deficit Questioned”. Associated Press. Retrieved July 7^th, 2009, from http://www.cnsnews.com/PUBLIC/Content/Article.aspx?rsrcid=49081