The question of the week — does Chris Hansen’s arena proposal meet the Initiative 91 requirement that the city get a return on its investment? — has now taken center stage in the Seattle arena debates, with I-91 sponsor Chris Van Dyk promising lawsuits if the deal passes as currently written, and city councilmembers increasingly leery of approving anything that doesn’t clearly meet the I-91 standard.
First, a quick refresher: I-91, first passed in 2006, declared that the city of Seattle can’t spend any money on private sports facilities unless taxpayers get a return on their investment greater than the rate they’d earn from treasury bonds — currently about 2.7%. The return is figured on a “net cash on cash return” basis — something that arena backers say means I-91 doesn’t technically apply here, since the city is putting up bonds, not cash.
Van Dyk, speaking during the public comments period of a council hearing yesterday, as well as to reporters outside the hearing, called this “a sophisticated way to duck around” the initiative’s requirements, and “like saying you didn’t buy a car or house because you borrowed money from a bank.” By his calculations, the combined rent and tax kickbacks included in the Hansen plan would just allow the city to break even, meaning Hansen would need to kick in an extra $3.4 million a year to produce a 2.7% return.
Council budget analysts, meanwhile, mostly agreed with Van Dyk’s contention that the Hansen plan would only break even, not turn a profit. (It’s what earlier Seattle cash flow documents appear to show as well, with no positive return after the first two years; as does the wording in Hansen’s MOU with the city — see section 12c.) And while they said it’s not clear that I-91 technically applies, thanks to that ambiguous “cash on cash” wording, they offered three options to deal with this: Either exempt the arena from I-91, determine that I-91 doesn’t apply, or just forget about the “cash on cash” business and determine whether the arena plan would provide a “fair value” return.
Hansen retorted by posting a Powerpoint presentation to his pro-arena website, claiming that the city would get an additional asset that the council staff didn’t count: the land under the arena, which Hansen would be giving to the city. Assuming that the property is worth $50 million today, and appreciates at 5% a year (apparently Hansen is really bullish on downtown Seattle real estate), then after the cost of demolishing the new arena is subtracted, after 30 years the city would be left with a $197 million profit.
Councilmembers, according to Sportspress Northwest’s Art Thiel, were not “eager to put an appraisal on seven acres of land 30 years from now in SoDo as the primary return on the city’s risk.” (Or as Thiel put it somewhat more colorfully, “forcing, say, the 2043 city council to admit that the only I-91 payoff was the seven acres in SoDo that became liquified goo in the 9.0 earthquake of 2040.”) One possible alternative offered by the council staff: ask Hansen to put up a 1.5% a year “risk premium” to take the sting off the possibility that land values won’t appreciate like crazy.
At least one councilmember, Sally Clark, told Thiel she’d go for that, and given that Van Dyk admitted that the Hansen plan was “very close” to being I-91-compliant, he might as well. Which means this deal could end up turning on whether Hansen is going to walk over a difference of $3 million a year — or “a small portion of the salary of an NBA center,” as Van Dyk put it. That would probably be a hard pill for Hansen to swallow, given that he’s already looking at trying to turn a profit on a half-billion-dollar arena funded mostly by private money, but it might be a small enough gap to bridge after some additional brinksmanship and haggling.
In any event, props to the Seattle council for actually trying to negotiate a deal that will work for taxpayers, rather than rubber-stamping whatever a sports facility developer asks for, as has happened in so many other cities. It just goes to show that sometimes public referendums to establish stadium spending rules can work — at least, when you have elected officials who aren’t ready to throw them out the window at the first opportunity.