By David Siders
Published: Tuesday, Dec. 28, 2010 – 12:00 am | Page 1A

Likely scuttling Gov. Arnold Schwarzenegger’s controversial bid to sell 11 state office properties to private investors, a state appellate court Monday effectively blocked the sale from proceeding until Gov.-elect Jerry Brown takes office next month.

Though Brown has declined to say how he will act on the sale, he previously called it “not prudent” and asked Schwarzenegger to delay the transaction until after he takes office.

Brown has acknowledged, however, that the state’s massive budget deficit would grow by another $1.3 billion if the sale is scotched.

The transaction is controversial because it requires the state to lease back the properties for 20 years at significant cost.

In its order Monday, the 6th District Court of Appeal in San Jose scheduled oral arguments in the case for late January, delaying the matter until after Schwarzenegger’s departure unless the state Supreme Court intervenes this week.

Schwarzenegger previously asked the Supreme Court to do so, saying the deal would be jeopardized if it is not done before he leaves office. All seven members of the state Supreme Court have recused themselves from participating in the case. The court is housed in the San Francisco Civic Center Complex, one of the buildings involved in the sale. Seven appellate court judges have been assigned to serve in their place.

Schwarzenegger’s office referred questions to the Department of General Services, which is managing the sale. A spokesman, Eric Lamoureux, said the department is “pleased that the court agreed to act promptly on it.”

Brown spokesman Evan Westrup said Brown will review the case after taking office.

Schwarzenegger and the Legislature last year approved the sale of 24 buildings on 11 properties to raise money in California’s budget crisis. The properties include the East End complex and attorney general’s headquarters in Sacramento. They were to be sold to California First LLC, a consortium of investors, and escrow was scheduled to close this month.

But three former building officials sued to block the sale, claiming it did not undergo adequate review and is a gift of taxpayer money. Though a San Francisco court initially rejected their arguments, the appeals court granted a stay.

Proponents of the sale said Schwarzenegger and the Legislature acted appropriately. They said the state is in need of immediate cash.

Los Angeles businessmen Jerry Epstein and Rusty Doms were dismissed by Schwarzenegger from the Los Angeles State Building Authority after questioning the transaction. A third former building official, Donald Casper, said he was dismissed from the San Francisco State Building Authority after he, too, raised concerns.

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