Would-be Seattle arena builder Chris Hansen has taken to his own website again to explain how his financing plan would meet the demands of Initiative 91, the Seattle law that requires that the city get a return on its investment above what it would get from a treasury bond. And this time, he’s getting snarky on us:
While the MOU is no doubt complex, the math here is not. If we just divide the $14 million in GUARANTEED taxes and rent the City/County will receive per year by their $200 million investment, we get an annual return of 7.0%.
With this in mind, the simple “common sense” question we would just ask all Seattleites is “How does a 7% return not exceed the 30 year Treasury rate of 2.7%, which is what is required by I-91?”
This is indeed simple — it’s just completely the wrong way to calculate a return on investment. For example, let’s say you buy a share of stock for, oh, say, $200 million. (It’s very expensive stock. In Stark Industries.) But because you don’t have $200 million, you have to borrow it from a bank, at 5.5% interest. Your stock then returns dividends of 7% a year. Have you turned a profit of more than 2.7% a year?
Actually, it’s worse than that, because you can sell your stock when you’re done with it — hopefully at a profit — but at the end of Hansen’s deal the city will be left with a 30-year-old arena, which is worth pretty much nothing. Hansen appears to be including the repayment of the initial investment as “return,” which is not how most investments (or, indeed, treasury bonds) work.
In fact, it’s worse than even that: Unless the bond cost numbers have changed dramatically since the spring, the city is going to be spending more than $14 million a year to pay off the bonds, which means it would barely break even from Hansen’s payments. Much of which are actually kicked-back city taxes, let’s not forget, though Hansen insists that they’re “new tax receipts that would not exist if our proposal does not move forward” and so should count as a return on investment — though he then notes that even counting only his rent payments, the city would get a 3.2% annual return on its investment. A return that wouldn’t be enough to pay off the city’s annual bond costs, mind you, but Hansen terms this a win for the city.
The problem here is that I-91 was crappily written, assuming that the city would put up cash up front, and not considering that it might have to borrow money and then pay back both itself and bondholders. As a result, you have Hansen arguing that a deal in which every penny of taxes and rent payments supplied by the arena — even by his own numbers — would get poured into paying off annual bond payments is a net positive return for the city. That may be true according to the letter of I-91, and it’s certainly better than the usual poke in the eye with a sharp stick that Seattle has gotten from its stadium deals. But to say, as Hansen does, that his plan meets “both the definition and intent” of the positive-return-on-public-investment assumes that people in Seattle have a really, really weird notion of positive return.