Sacramento study shows $7B in arena gains $690m in arena losses

So it looks as if the big news during my hiatus was the release of a study by Sacramento Mayor Kevin Johnson’s arena task force that claims $7 billion in economic benefits from a new Kings arena:

Advocates of a new downtown Sacramento sports arena rolled out a study Thursday that puts an eye-popping number on the building’s projected economic benefits: $7 billion over 30 years.

[The study] said the new facility would shower the region with $157 million a year. That includes spinoffs such as sales at restaurants and hotels, as well as $6.7 million in taxes. … The Sacramento study’s author, Sacramento consulting firm Capitol Public Finance Group, contends that the downtown location would create considerable economic activity beyond the walls of the building itself. The arena would draw 3.1 million new visitors a year downtown, the report said.

The actual report is here. (Note that the task force has been renamed from Here We Build to Think Big Sacramento, apparently because they couldn’t get the rights to the old domain name.) Actually reading it reveals a few details not covered in the Sacramento Bee article:

  • It’s not 3.1 million new visitors that the arena would be expected to draw each year, but rather 3.1 million visitors total. The report doesn’t bother to say how many visitors the current arena gets.
  • Likewise, the $7 billion a year in “economic benefits” is actually economic activity: in other words, the gross total of all spending in the greater Sacramento region by anyone going to a new arena, whether inside the gates, at local restaurants, etc. Net spending — in other words, money that would be new to the region — is actually estimated to be just 15% of that, a little under $25 million a year.
  • That’s economic activity, not revenue to Sacramento. Actual new sales and hotel tax revenue to the city is estimated at $1.7 million a year.

So, the plan here is to spend around $400 million (the task force hasn’t decided yet how the money would be raised), which comes to around $25 million a year in bond payments, to build an arena that would only generate about that same amount of money per year in new economic activity — and which in tax revenue would bring in less than one-tenth of what taxpayers were spending. That’s eye-popping, all right, but probably not in the way that the Bee meant it.


19 comments on “Sacramento study shows $7B in arena gains $690m in arena losses

  1. So far, we have an arena with no parking for under $400M — and this proposal makes no sense — and the stated benefits of it would be $7B over 30 years — which also makes no sense.

    So, any guesses as to whether the Sept 8 “final” report makes any sense at all? I mean, since the foundations for the Sept 8 report will be so “solid”, the report itself will definitely say this is worth it.

    Also, can you ever remember a report claiming !!**THIS**!! many benefits from an arena? Compare this with Nassau’s proposal, for example.

    I still say that if there’s going to be a hotel and rental car tax, there must be an election; California state law will require it. Prop 26.

    www.voterguide.sos.ca.gov/propositions/26/analysis.htm

    What do you think? I don’t see how they come out with their report on Sept 8 and pass a higher hotel tax by March 1.

    I bet you the Sept 8 proposal won’t contain lease terms, either. I just bet you. The Maloofs will make vague statements that they’re willing to make lease payments to stay in such a wonderful building, and that’s about as committed as they’ll get.

  2. Sure, I’ve seen plenty of economic impact statements with outsized benefit claims like this — if you count as benefits every penny spent in and around an arena, regardless of whether they’re 1) new, or 2) anything that actually results in new tax revenue for local government. The difference is that usually reports aren’t quite this bald-faced about taking gross economic activity numbers and pretending that they’re “benefits,” while burying the figures that show actual taxpayer benefits.

    In short, I don’t think this report is any more or less vague than the average one. I think what happened is they looked at the actual economic impact, found it to be minimal, then decided to play up the $7B number instead because it sounded better, even if it’s meaningless.

  3. MikeM – In Santa Clara, the hotels around the proposed NFL stadium voted to increase their occupancy tax by 2% to raise $35 million (over who knows how many years) towards stadium construction (never mind that $20 million of that will be in bonds plus interest, and the remaining $15 million will be in the form of a loan from the 49ers to be paid back with interest).

    They did this by forming a Community Facilities District and it did not require a vote.

  4. I honestly don’t think Sacramento cares what the economic losses or gains would be. Fact is they either build the arena, or they lose their team. And the city and many of the voters seem to have decided that the team and other events the arena hosts are more important than any other considerations. And frankly I can’t blame them. Get rid of the basketball team and all the concerts and other events the arena hosts and Sacramento becomes a significantly more boring and less appealing place to live.

  5. Santa Clara, when was that vote held? Prop 26 passed last November.

    The real problem, as I see it, is when the tax hike doesn’t bring in the anticipated revenues, and then the general fund is exposed. That’s the real danger with all of them, though, isn’t it.

    I think even if some sort of special election like that was held where only the hotels got to vote, it’d be a tough sell, largely because the first two reports they’ve produced are so shaky. They’re not going to get that arena built in that location for $387M, and it’s not going to produce $7B in new total business.

    Now, I can see one thing the proponents will do: Compare the amount of revenue without an arena to the amount with an arena. Right now, we have an arena. If the Kings leave, sorry, but there really is no point in this new arena. Spin it as many ways as you want to, Kings leave, no arena.

    Which means a new arena really is all about them.

    But I think the point is, you actually can sort of treat this as new money. If the Kings stay, some portion of that $7B will stay. But if they leave, whatever money they bring in now will be gone.

    Having said that, I don’t see how the City can possibly rationalize a level of participation that would exceed the tax revenues collected; about $1.7M/year. Allow for inflation, call that $4M. 30 years, $120M… Anything else is simply gone. Approximately a 20% contribution.

    If the City says, “20%, not one penny more…”, hello Anaheim. And I can live with that. That’s how you negotiate.

    If they don’t like that, they like NBA basketball way too much.

    My feeling is that the $7B number is probably off by a factor of around 3. $2B over 30 years? Yeah, I suppose I can see that. If everything goes perfectly, could happen. And that lowers the amount we can rationally give them by about 2/3, to under $50M.

    At $50M, I don’t care. Start digging, as far as I’m concerned. Just write the bonds to say that bond-holders assume 100% of the risks. As soon as it exposes the general fund, like KFC Yum! did, we’re out.

  6. “Economic Benefits” is a totally meaningless buzz-number. It ignores the fact that even with NO new Sacramento arena, leisure money still gets spent on what Sac has to offer – and without taxpayer dollars being squandered.

    And “Economic Activity” isn’t profit, income or even revenue.

    It’s traffic. Traffic in dollars. I give you four bucks, you give me a slurpy cup of flat beer. I give you six bucks, you serve me a weepy frank on a soggy bun.

    That $7 billion figure is garbage, but it looks like Sacramentans are going to fall for it. If all the Kings can drum up is cooked numbers like that, they *should* be gone, and yesterday.

    We got the same cooked numbers here in Santa Clara, with two local Chambers of Commerce swearing that the “economic benefits” from a publicly-subsidized stadium amounted to “hundreds of millions of dollars.”

    There was not even an *indirect* economic benefit anywhere close to what those guys managed to make up.

    In fact, it turns out that when “economic activity” from any NFL stadium in our city was calculated by the city’s own consultants, they could only come up with $41M a year from the stadium – a pathetic thousandth of what any three technology firms do for this region every year.

    = = = = = = = = = = = = = = = = = = = = = = = = =
    The funniest part was learning that any 49ers stadium in town will generate even LESS “economic activity” than the 49ers Training Center does!
    = = = = = = = = = = = = = = = = = = = = = = = = =

    It’s too bad, but the Arena Booster Crowd in Sac is going to deceive itself with a figure even more absurd than what we got here four years ago.

    Rgds,
    Bill Bailey, Treasurer,
    SantaClaraPlaysFair.org.

    -=0=-
    Ref.: Santa City Council Agenda Report for June 2, 2009, “Exhibit 6 ÔøΩ KMA Stadium Economic and Fiscal Impacts Recap”

  7. I really do not see this project getting off the ground. From San Diego, to LA, to San Francisco, to Oakland, to Santa Clara, I have been hearing about plans to erect, and update sports facilities in California, and they have not happened yet (Even USC can’t get the Coliseum upgraded yet). I read an article in yesterday’s Wall St Journal about the difficulty in creating a small business in California (All kinds of regulations (Environmental and others)have made projects like this difficult#. This does not include the variuos pressure groups #Anyone remember the difficulty in getting an upgrade at Cal Berkley?), and the lack of political will for it (Jerry Brown vs the A’s when he was Mayor (Choosing a housing project over a Stadium comes to mind)). Well as Governor, he has not changed his thought process (The Teachers Union and interest groups over business). The Kings will be in Anaheim, sooner or later (I bet sooner).

  8. I’m wondering, too, how the fight over redevelopment agencies in California affects this arena fight. I suppose we’ll find out soon if they were counting on that money.

  9. Bill, reading through the comments on the sacbee articles that appear on this, I do not share your pessimism. The critics are out in force on this one.

    Sacramento has a 9-member City council, and right now, I don’t think the individual members share the mayor’s sense of urgency. Maybe 2 of them do; the rest seem not to.

    I really don’t think they know what they’re doing, but changing the public meetings to private meetings did not go well. But since this is not an official governmental body, then they can do that if they want — but they should strip their titles from the documents if they do. They give the impression of being a public group, but they’re not. They did not follow the prescribed process for creating a mayoral commission.

    I’d like to see someone go in with a court injunction that gives them a choice. Either:

    1) Open the meetings to the public, or

    2) Keep the meetings closed, but announce that this group is a private group that carries no legal weight, and thus, all they are doing is making a proposal. Oh, and strip all the titles from the documents; it’s okay if Darrell Steinberg is on the panel, but it’s not okay that “State Senator Darrell Steinberg” is.

    Their choice. One way or another, I don’t really care.

  10. If you live in Sac, you would be wise to insist on PUBLIC sessions of your Council – at all times – so that all of the money is on the table where everyone can see it.

    Santa Clara’s Council has held 92 closed sessions on the stadium subsidy, even though the parcels are known, have been since April of 2007, and the area’s virtually completely built-up, leaving no room for speculators to drive up the costs to taxpayers anyway.

    What we’ve learned is that certain aspects of the 49ers’ own dealings with concessionaires and with contractors bear on what they claim is their own “proprietary” information – and after another round of such closed sessions, we found out that the team will be piling even more debt on the Santa Clara Stadium Authority, a party to exactly those same closed sessions.

    Insist on option #2). Keep it public. A millionaire team owner who has nothing to hide from taxpayers won’t fear such public sessions in any way.

    It’s the price of spending our money on their stadiums.

    Rgds,
    Bill Bailey, Treasurer,
    SantaClaraPlaysFair.org.

    -=0=-
    Ref. — Santa Clara City Council Agenda Report for Item 6B, June 7th, 2011. See the slides, too:

    sireweb.santaclaraca.gov/agdocs.aspx?doctype=summary&itemid=31123

  11. Well with a lockout and a possible cancellation of the season (I can’t see that happening since some reports have show that the NBPA has some dissension with not only Billy Hunter but the younger players don’t exactly trust the veterans).

    Sacramento is going to lose this team to Anaheim and I have a feeling that New Orleans will lose their team to San Jose. After that the Bucks are in a dire situation and Newark is beating the drum for their own team once the Brooklyn Nets at Barclays Center becomes a reality.

    The Timberwolves without an arena renovation or getting their heads out their asses by moving to St. Paul, they’ll have to relocate. Plus the Pacers lease expires in 2 more seasons along with the Grizzlies & Clippers not having a lease after 2014.

    I could see the NBA lose a season to get their crap straight or possibly 2 seasons if they’re ready to go nuclear. The best thing the players could do is have their superstars join teams that participate in Euroleague.

  12. Well with a lockout and a possible cancellation of the season (I can’t see that happening since some reports have show that the NBPA has some dissension with not only Billy Hunter but the younger players don’t exactly trust the veterans).

    Sacramento is going to lose this team to Anaheim and I have a feeling that New Orleans will lose their team to San Jose. After that the Bucks are in a dire situation and Newark is beating the drum for their own team once the Brooklyn Nets at Barclays Center becomes a reality.

    The Timberwolves without an arena renovation or getting their heads out their asses by moving to St. Paul, they’ll have to relocate. Plus the Pacers lease expires in 2 more seasons along with the Grizzlies & Clippers not having a lease after 2014.

    I could see the NBA lose a season to get their crap straight or possibly 2 seasons if they’re ready to go nuclear. The best thing the players could do is have their superstars join teams that participate in Euroleague.

  13. Now Think Big Sacramento is announcing “citizen architects.”

    thinkbigsacramento.com/involved/join/

    I think this is a fascinating development, and I absolutely intend to apply.

    I’m going to do it.

  14. From Cowbellkingdom.com

    “After some training, these citizens will enter their own neighborhoods and communities to educate friends, family, co-workers and neighbors on the non-basketball benefits associated with the new ESC.”

  15. Also, at thingbigsacramento.com they have the January 2010 Threshold report up. Notice how the jobs numbers included in the most recent report came from the Threshold and how in the Threshold report it mentions how a big chunk of it is “indirect.”

  16. Oh, No! Not this!

    www.bizjournals.com/sacramento/print-edition/2011/07/08/arena-operator-aeg-could-be-local-player.html

    Neil, they’ve pulled out the standard Goldman-Sachs/AEG-playbook, and they’re following it step-by-step. How can we make it stop??!!

    I fear it’s now too late.

  17. What a farce. Training “citizen architects”? Sounds like the formation of a cult with Brainwashing 101. I hope the citizens of Sacramento aren’t this dumb to signup as useful idiots for this propaganda machine.

  18. This is kind of an interesting take, but using the stats contained in it, I come to a very different conclusion:

    www.huffingtonpost.com/david-berri/nba-lockout-2011_b_894196.html

    My conclusion: Stop publicly funding arenas. Just make a pact that says “We will not try to woo your team with a game of ‘Can you top this?\'”.

    I don’t know. Am I missing something? The capitalists are supposed to provide the capital? Great! Let ’em.

    Oh, they can’t? Hmmm. Sounds like a flawed business model to me. Get back to me when you’ve fixed those issues.

  19. Factor in: 1) Immediate and direct negative economic impact on Natomas businesses and their tax contributions; 2) Likelihood that Natomas will never get it’s long-promised transit station and, without it, transit to the airport starts look problematic; 3) Land use impacts on Natomas — the “entertainment complex” and transit station were to be the centerpieces of the North Natomas “downtown”. What happens the “Smart Growth” concept Natomas has been built around the past two decades?

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