Long Beach – Unwind the deal.

Posted on December 4, 2012

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Justice Hill In a recent post labeled Courthouse Construction? Frozen until further notice Justice Brad Hill delivers bad news while attempting to put a positive economic spin to it. However, neither his numbers, nor do his conclusions add up without converting the PPP project to bond financing. For a little more detail as to why that might be, try and follow our logic here.

The Long Beach courthouse is performance based infrastructure. When the AOC bought the courthouse, unlike all other courthouses they also purchased 35 years of facilities management and facilities maintenance. What the justice is attempting to do is bifurcate the issue of courthouse construction costs from courthouse operations and maintenance so that he can grossly underestimate the hit to the 1407 authorized expenditures and push forward on a number of other projects that will ultimately blow their budget. Or at least buy them more time to convince legislators that it should be okay for them to legislate from Judicial Council offices. Factoring in operations and maintenance for 35 years doesn’t appear to be on Mr. Hill’s radar, much like all of the other operations and maintenance he and his committee is neglecting statewide to the tune of 2.5 billion dollars.

Unfortunately for Mr. Hill, with performance based infrastructure he bought a package deal and created a packaged obligation that can’t be bifurcated. We suspect that if people really want to be honest with each other and the rest of the branch, in the coming days prior to his meeting someone is going to have to factor in these other obligations and decrease the amount of available funding for other projects accordingly.

In reality, a place where Mr. Hill seldom visits, the real world costs of the Long Beach courthouse to authorized 1407 expenditures will be well above the 600 million in savings he has to find in the other projects. Factoring in the related construction like the parking garage and the O&M costs for 35 years is going to add another couple hundred million to his 600 million dollar figure. The real measurement of what the costs are to the 1407 fund is what the same rent payment would pay towards paying off the bonds. While we tried to find an online calculator that might have gleaned an equivalent number, amazingly the online calculators can’t deal with numbers this large so maybe one of you finance experts might be able to do the math. Regardless, the number is well above 600 million dollars and serves as a crippling blow to other courts statewide.

Now you can probably see in Mr. Hill’s message that he seems to believe that a courthouse construction project, a project whose astronomical costs don’t even appear to be authorized by any vote of the judicial council, he seems to be taking the position that the legislature mandated the project be a PBI and therefore the legislature should be obligated to pay for it. This is the snow job that those that speak with one voice will continue to babble, believing that a co-equal branch of government also gives them the right to create obligations without a vote of the people or their representatives. It matters not that the judicial council fiercely lobbied for the right to build a PPP over other alternatives; they weren’t the ones who passed the legislation, they argue.

While you might come away from this site with the belief that JCW is against court construction, we’re not. We have visited courts all over the state and know the state of disrepair of many buildings in the California court system. Many need to be replaced. However someone mistakenly handed the keys to the construction candy store to the irresponsible that are accountable to no one. In turn, they published an obscene price list of what they expected to be charged for a number of courthouses before ever putting them out to bid. No one seemed to notice or care that the total project costs exceeded the authorized bond expenditures by 1.5 billion dollars or that each resident of Alpine or Sierra counties was getting a $25,000.00 per person gift from the state that they didn’t want. Nobody seemed to notice or care that the AOC is renting the old Mono county courthouse in a shopping mall for the next 4 years even though it’s vacant. Hardly anyone seemed to notice that “transfer is the answer” was initially promoted by Mr. Hill, also in charge of county to state court transfers, assisted the counties in shedding these assets as well as the liabilities that they rightfully owned. So it should come as no surprise whatsoever that Mr. Hill has stepped into it again and it is again someone else’s fault.

Now our first thought is to make the Meridiam Infrastructure contract public and to post the contract on the AOC’s website for all to see to see what provisions might exist to unwind this deal into conventional bond financing. However much like the Deloitte boondoggle, we would expect that the AOC will tout trade secrets and other reasons they might not wish to release that contract without heavy redaction.

In our opinion, the legislative pushback on the AOC to fund the Long Beach courthouse consists of legislative checks and balances that are long overdue and refreshing to see. Someone is holding the AOC accountable. Accordingly, the entire rent payment should be paid for not by SB1407 funds but by the funds allocated to the AOC.

It is their mistake. They should pay for it from their own allocation.