Seattle arena study findings: Somebody needs to do, like, an arena study

The King County council’s Arena Proposal Expert Review Panel issued its report on Chris Hansen’s Seattle arena plan yesterday, and while there are no bombshells, there are some interesting bits.

First up from the panel is Seattle economic consultant Dick Conway, who starts unpromisingly: “We cannot assess the economic impact of the proposed basketball arena.” He then calls the tax impact of a new arena “fairly small,” but says that’s not a problem because “ultimately no tax dollars, other than those coming from the arena operations, will go into the construction and maintenance of the basketball arena.” Also, “Baseball parks, football stadiums, and basketball arenas–like parks–are public goods.” If you were still hoping for any actual economic impact analysis from Conway, you can stop now.

University of Washington public finance expert Justin Marlowe then looks at the financing schemes, and notes that Hansen has taken “remarkable steps” to reduce the risk to the public, in particular by ensuring that the combination of tax rebates and rent payments will cover 100% of the city’s bond payments, plus any cost overruns. “I have studied public-private partnerships for nearly ten years, and I have not seen this level of security for taxpayers in any other arrangement of this size.”

Finally, we get to University of Washington geographer and economist Bill Beyers, who conducted several previous studies of the impact of Seattle sports facilities. And while Beyers doesn’t try to conduct a similar study for the Hansen arena plan — beyond noting, “It may be prudent for the Council to require such a study in the MOU prior to commitment of any public financing” — he does raise a bunch of interesting issues:

  • In his 2005 study of Key Arena, Beyers found that about 50% of the money spent at the arena was new to the region, and the other half was diverted from elsewhere within the region. (I think he means new to King County, but he isn’t entirely clear on this.) Beyers doesn’t go into details of how that would affect the various tax streams that would be funneled toward paying of the arena — the ones that Hansen, and Conway, assert are 100% new — but does call for a regional tax revenue study to figure this out.
  • Beyers says that it’s clear that “this project is a winner for the City of Seattle tax revenue stream, as the admission tax would be a large gain to city revenues.” Since it would in part be cannibalized from other spending, though, a more substantial countywide study is needed.
  • No analysis has been done of “leakage” from the project — i.e., the “basketball players don’t spend most of their money at the local Safeway” problem.
  • “Adding both an NBA and NHL franchise would put us with numbers of teams well beyond the size our population would expect to have,” which could result in an “adverse impact on fan spending” for existing teams. (Conway elaborated during his council testimony that “If we add two more teams, then we become the third worst-saturated city with regard to professional sports.”)

Finally, transportation experts Charlie Howard and Doug Macdonald not that since 81% of arenagoers are expected to arrive by car, improvements to highway interchanges and to public transit (to get people out of those cars) will be needed. No cost estimates provided on those.

In short, while the county study provides little in the way of hard numbers, it does shout pretty loud that there are many unanswered questions here that need to be studied further before we can know exactly how good a deal this is for Seattle and for King County. On Wednesday, county councilmember Bob Ferguson said he’d move for a full economic impact study to be completed — at Hansen’s expense — once the arena MOU is approved by the city and county councils, and Hansen said he would agree to that condition.

So, we may have some more answers about how the arena numbers work out — eventually, and presuming that the county doesn’t let Hansen pick who’ll conduct the study just because he’s writing the check. The question then will be whether the arena plan will have so much momentum once the MOU is approved that it’ll be too late to easily back out if the economic impact numbers don’t look good. But at least it’ll be better than going into the deal not knowing what we now don’t know.

43 comments on “Seattle arena study findings: Somebody needs to do, like, an arena study

  1. Re the Saturation commentary.

    The economist does admit to the analysis being “admittedly crude” but I wonder why he would even mention it. Seems like a stretch to compare NYC & LA to Denver & Seattle. He even throws the Seattle Storm into his analysis which doesn’t seem remotely relevant. (Trust me when I say there is little to no cross over from Storm fans to other sports fans). Soccer is an odd one to throw in there as well for Seattle. Last I looked, Seattle Sounders average 2X the league average for attendance where other cities it is barely a blip. Separately, I imagine that the average sports fan is only a fan/follower of something like 2.5 sports so the cross over might be limited. I also smirk at the Mariner’s, their 2011 average attendance is down almost down 20K a game since 2001 (multiply that by 81 games and you have enough fans to fill hockey and NBA games..that’s not realistic but kind of funny to think about). I don’t really think it has anything to do with the Sounders coming to town, it could be their record.

    Do you know of any commentary or analysis on Market Saturation for other markets or a framework to look into this?

    I’ve got my suggested inputs that should go into such analysis:
    – Population
    – Population-Density #?#
    – Average Income per household
    – # of millionaires in the area
    – # of Corporations that are headquartered in region/county
    – Canadians living in the area #for hockey#
    * Another hockey specific one is the number of ice rinks in the area. I know Nashville only has two sheets where Seattle has 8

  2. I seem to remember Sports Business Journal doing something a few years ago that included a lot of the inputs you mention. Don’t have it bookmarked, though.

  3. Marlowe:
    The second, and probably more important reason, is that it allows ArenaCo to finance the facility over 30 years. This allows ArenaCo to amortize the debt over a much longer time period and drive down its operating costs. And third, with public financing ArenaCo can finance the project with 100% debt. This obviates the need for equity investment that increases the project’s overall
    financing costs.
    … Moreover, under a privately-financed scenario ArenaCo’s debt investors would likely demand equity investors to create some additional security between the Arena revenues and the annual debt service payments.

    So a company wouldn’t be able to finance such a mega-project over 30 years but once the public funds are involved long-term payouts are OK because they lower the yearly payments ? There’s a reason cars aren’t sold with 30 year loans.

    How would 100% financing be cheaper than some combination of financing and equity, except during the time you add the equity ?

    And Marlowe goes on to suggest that the serial bond-issuing being suggested for the financing won’t be possible as a private LLC and that private financing would ask for more security between arena revenues and debt service than the current plan provides.

  4. The MOU is binding, so any economic impact study done after the MOU would be approved is useless. The city and county would be committed to the project no matter what. That’s why Hansen agreed so quickly on the study – he knows it’s toothless and couldn’t possibly kill the project.

    It’s clear much, much more study needs to be completed, but it has to happen BEFORE the city and county are legally committed to the project. Ask Hansen if he’d agree to a study while the councils are deliberating on whether to sign the binding MOU. While they still have leverage in the deal and can pull out if the study has troubling findings. Hansen will give you a very quick no.

    This also goes to show that there is no rush to this deal, despite what Hansen tries to claim. He’s already admitted it could be 5-7 years before he could get a team. What’s another few months to actually do the necessary research?

  5. @benland

    Valid comments but the sense of urgency is around the Sacremento Kings. I am fairly certain that he has a deal to buy them already. In spite of all the threats (the no threat threat), teams really don’t move around that often so when a team without a home like the Kings becomes available it is rare. Hansen mentioned that it wasn’t the perfect timing for him on where he is at in his life but feels the opportunity exists now. I think the 5 year timeline he mentioned is to make sure he didn’t set fan expectations that high. If he doesn’t get the kings than that is decent expectation. Maloofs have been alwful quiet when some people expected them to go to Anaheim next season which I would have to imagine they would have already annonced it if it were true.

    My question would be why isn’t this analysis being done or started already. The MOU has been signed(?) for a couple months at least. I guess that is how municipalities work.

    If Seattle passes or delays this deal, they could miss out on the kings. This might be the right approach for the city but it is one of those opportunity costs of waiting for further analysis.

  6. But the mayor/dow’s offices were working on this for 9 months or so when the word first broke to the public in February. Here we are 5 months later still asking for studies on the impact to the other facilities the public owns ? It seems like they could have started that long ago if timing was such a big deal.

  7. I try not to post on sites and forums but I have a message for JB. JB, it’s no use trying to convince these people, I hope you realize that. They are against this arena, and that is that. They only want further studies because they are hoping that one of them will kill this deal. I wonder how many studies they have asked for relating to other projects in Seattle. These guys have also been furiously posting their anti-arena opinions on the Seattle Times site. I hope they were this upset when they found out that their favorite newspaper has been receiving a government handout for three years in the form of 40 percent less taxes than a normal business pays. My guess is that they were not.

    The INDEPENDENT expert panel came out yesterday in extreme favor of this deal and yet, these people want more studies until they find the one that agrees with their point of view. No matter how much you try to persuade them, it is going to be a waste of time. Frankly I am not sure why you even care. Despite what anyone here says about public financing and this or that, this is an ANTI ARENA site. And even more frankly speaking, this is an anti-RICH PEOPLE site. Imagine if you were pro choice and you started visiting pro life forums to communicate your point of view. How far do you think you will get with them. This is sort of like that.

    Any INDEPENDENT analysis shows that this is a fine deal. May not be a positive for people that do not care for basketball, but not a negative either. And yet, you will see them huffing and puffing like the world is about to end. They are hoping that this project gets bogged down in studies, loses momentum, and eventually gets derailed. Momentum is what scares them. You are not going to change their mind. Instead use your energy to write to the Council members. It is their opinion that matters the most.

    People on this ANTI ARENA site represent a minority opinion, albeit an extremely loud one. If you do not believe me, visit todays poll on the ANTI ARENA Seattle times and see the results yourself.

  8. Gus, did you see how much tax revenue King County is giving up in this deal ? Maybe that’s why THE COUNTY’s review panel found little harm or gain possible when they only have $13M in tax money and as little as $5M in bonds on the line.

  9. Chef,

    As was mentioned last night on the Seattle Times boards, the municipalities will also gain about $50MM (as reported by Prof Beyers) in taxes during the construction of the arena–and not related to the MOU or proposal. I used municipalities because Prof. Beyers did not break down the distribution to city/county/state in his slides, although did call the City of Seattle the clear winner.

    Since the proposal calls for at least a neutral cash flow–depending on whose analysis you prefer–the initial $50MM tax influx from the first two years (construction of the arena), is a net gain for the general funds of the municipalities.

  10. Yes, construction activity is charged sales taxes at the Project Site (which the MOU says the city/county could actually return if they deem it a product of the ArenaCo project) and of which the state gets 6.5% of).
    The City of Seattle is deemed the clear winner because they’re “getting” 67% of all the projected taxes due to the admissions tax, and then feeding that to ArenaCo bonds. The other way Seattle is the clear winner is because any ancillary spending will mostly occur around the arena rather than unincorporated king county.

    But, yes, I’m sure the State, which hasn’t been asked to contribute anything (unlike the neighboring stadia) will enjoy their 6.5% construction sales tax from this project.

  11. Except, the MOU has nothing to do with the construction activity, unless the MOU is amended to include the construction taxes. Hansen can’t use whatever taxes he feels like, and is the exact reason why the taxes are spelled out in the proposal.

    The construction taxes are not included. You used the same argument last night. Time for some new canned responses.

    Since when is a large, essentially free, tax influx of $50MM to the municipalities’ general funds–even if it is for a short time–a bad thing?

  12. I don’t need to fill Neil’s site rehashing the same argument with you, but I’m not sure why you’d think construction activity (which is charged sales tax ) would be excluded as a tax that will be attributed to the arena as received on/from the arena Project Site. It’s a Project Site until there’s an arena there. Unless you can show me where it’s included I think using the term Project Site speaks for itself.

    d. Arena Tax Revenues. ÔøΩArena Tax RevenuesÔøΩ means the dollar amount of: (i) all sales tax, property tax, leasehold excise tax, and admission tax revenues, as well as other tax revenues attributable to the Arena and Arena Tenant Improvements that have been received by the City or the County on and from the Project Site and Arena, and from all uses and activities conducted thereon, except for those tax revenues that are subject to legal restrictions that preclude their use either for payment of Arena-related debt or expenses hereunder (other than parking taxes attributable by contract to the Arena) plus (ii) City business tax revenues imposed under Chapter 5.45 SMC or any successor provision that the City has reasonably determined it received from ArenaCo and from other business activities engaged in, at, or from the Arena (including without limitation revenues from the business activities that have a substantial nexus with the City).

  13. Again, Prof. Beyers, an independent economic expert, was talking about ancillary taxes outside of the proposal.

    I tend to put more faith in him than “anonymous internet guy”

  14. Thank you Gus for your post. Needed somewhat of a reality check and your post is a good reminder that people will be against this regardless how many reports, studies and analysis is done. You will always have a Van Dyk saying ÔøΩI will sue because this isnÔøΩt compliantÔøΩ and provide no analysis on their side or the port saying, ÔøΩcost 1000s of jobsÔøΩ with no data on where that claim comes from. CanÔøΩt help to shake my head at the Seattle Times. The Field of Schemes book called the Seattle times being one of the biggest cheerleaders of the Safeco (or Qwest) deal(s).

    It was obvious based on the town hall that I attended this week that people wonÔøΩt really research the deal/issues and just be swayed by their preexisting biases. This really applies both ways because there are sports fans that will support an arena regardless of what it will cost the city.

    I still enjoy the commentary and posts here.

  15. Except that the $25M/yr number was on slide 9 of the ppt slide titled “Economic Impacts of Constructing the Facility” Genn.
    On pg 7 of the longer written analysis you’ll see that the estimate comes from multiplying an earlier study about the impacts of $100M in new construction spending.

    I trust My Beyers did the best analysis he could with limited resources, it’s just important to remember the context it was done in and not run away with the bullet points you want.

  16. I live in Denver, and we have a great b-ball/hockey arena, a great football stadium, and a great soccer stadium. We support all five, and we’re smaller than Seattle. They supported the Sonics in the past, and support the Sounders like Euros.

  17. Just read over all the pertinent documents again, and I’m fairly certain that construction sales tax does *not* get diverted to pay off the arena bonds, notwithstanding section 12d of the MOU. Or at least it doesn’t appear to be included in the city’s revenue estimates, so in any case it’s extra money on top of the break-even tax/rent flow that’s already been discussed.

    It’s not a huge amount of money for the city regardless – about $12 million, according to Beyers – but should certainly be included in the calculations.

  18. Neil, it’s not called out in the MOU, but Hansen has also expressed his desire to build an LA Live complex near the arena, a parking structure near the arena, and he has come out saying the City’s numbers are far more conservative than his own estimates, where he doesn’t think he’ll have to pay any Imputed Additional Rent.

    So many cards still aren’t on the table I’m more than a bit hesitant to grant broad tax exemptions to anything he or the city deem associated with the Arena development. Obviously.

    On slide number 20 he’s talking about I-91 return to the city on construction of the Arena… in the same group of bullets with all the other city tax streams he’s getting paid back.

    I-91 Compliance – Substitution Effect is Minimal
    The first factor here is that it is an undisputable fact that there is no substitution effect on the following:
    -Sales tax on Arena construction
    -B&O Taxes on the NBA and NHL franchises that would not otherwise exist
    -Leasehold Excise Taxes
    -Increased Property Taxes on the value of the Arena

    There’s still a lot of things not covered in the MOU, but I appreciate your objective opinion on reading it.

  20. And by slide 22 he’s no longer counting that arena construction as an I-91 return. Maybe it was left out because he didn’t feel it was a necessary point, but he seems willing to include everything he can as a return in this presentation.

    Based on the assumptions above, the annual “cash on cash” return would be calculated by as
    -Total investment of $200 million in year 1
    -Income stream of $14 million growing at 1% per year for 10 years, and flat for years 11-30
    -Land sold for $197 million in year 31 after Arena is demolished (and deducting $30M in
    demolition costs)
    -This analysis gives no credit for ancillary/out of arena new tax revenue described on the
    previous slide other than that it will negate the substitution effect

  21. “Beyers doesn’t go into details of how that would affect the various tax streams that would be funneled toward paying of the arena ÔøΩ the ones that Hansen, and Conway, assert are 100% new ” What is not “new” about these revenue streams? They would not exist without the arena.

  22. “Beyers says that it’s clear that “this project is a winner for the City of Seattle tax revenue stream, as the admission tax would be a large gain to city revenues.” Since it would in part be cannibalized from other spending”

    How, exactly, is it cannibalized from other spending? Are you talking about the substitution effect? No one has measured that. Mostly because it’s not accurately measurable. I find it interesting that the study on the Key showed that 50% of the spending came from out of county. How is that cannibalized from existing revenue streams in King County? The cup is half full…

  23. Have you ever thought of this – that competition in local sports markets is a good thing? That the M’s have put a crappy product on the market for a very long time, and that they might actually need to step up and put a better product out if the Sonics and the Seattle SockEyes are playing right down the road from them?

    I find it a bit laughable that the public entities are trying to measure whether the region can handle 2 more teams. What has Hansen, the career risk manager, done for the last year or more? Isn’t he and his team risking hundreds of millions of dollars on the theme that we CAN support 2 extra major league teams here? Why is it even on the plate for King County to look at this aspect? It’s a freakin’ joke. And the analysis provided on this issue by the expert panel was totally shallow and flawed, for reasons already described above.

  24. Do you really think that Hansen and crew are going to (or should be expected to) fund traffic improvements on our federal highways? Give me a break…

  25. ChefJoe: I would actually (mildly) dispute that there’s no substitution effect on B&O taxes and property taxes. If building a new arena affects other area businesses negatively – say, people go out less often to bowling alleys or something – then you’ll see a decline in B&O and property taxes for those businesses. Not a huge effect, but it’s worth estimating.

    speedcat: They’re not new if people would be spending the money in Seattle regardless. Presumably all those would-be arenagoers are doing something with their evenings currently – if it involves spending money in Seattle (and even suburbanites spend a good chunk of their entertainment dollars in Seattle), then that’s just redirected money, not new money.

    And the substitution effect is absolutely measurable – it’s hard, because you have to control for a million things, but it can be done. Agreed that most of the money spent by people from outside Key Arena isn’t likely to be substituted (though if I, say, go to Seattle on vacation and go to a basketball game one night instead of spending it at Pike Place Market, that’s totally a substitution), but the a good chunk of the rest of it is. If you want to take 50% as a reasonable preliminary estimate of how much arena spending is subsituted within the county, I’m willing to accept that, though the error bars are going to be pretty high (cf. vacationers above).

    I wasn’t all that impressed with the market strength analysis either, but it’s certainly worthwhile to see whether a city can support an extra two teams when you’re doing this to try to lure two new teams. As for highway interchanges, the study didn’t specify whose jurisdiction those would fall under – at what point does a highway ramp become a local access road?

    These are all things that an actual economic impact study would be expected to establish…

  26. Sorry if this was posted already here, have not read all the comments yet. But I wanted Neil to see this:

    It’s only $120 mil that applies to I-91. The City is only borrowing $120 mil. The remaining $80 mil is County money, and thus has absolutely nothing to do with I-91.

    BTW I read all the comments on your last article, and have to thank everyone for a very enlightening discussion.

  27. ChefJoe, the state sales tax revenues mostly trickle down to Seattle. Look it up if you don’t believe me. Seattle is a clear winner in more ways than one in this deal. And I’m talking real tax revenues, not some phantom unmeasurable thing. These revenues will go to help libraries, police and other necessary things.

  28. And for all you readers who still believe that the arena would get away with paying no property taxes, look here:

    page 8 of 13 shows that the City will get leasehold exise taxes of $200,000 per year, and KC would get leasehold exise taxes of $100,000 per year, from the arena. The leasehold exise taxes are a replacement for the property tax, which of course would not be paid as the city owns the property and arena.

    It’s sad to me that people bitch so much about spending an estimated $2 to $4 per year in property taxes per property owner in King County. It’s clear the City and County will still be getting that replacement revenue from the leasehold exise taxes. So they might be paying a touch more every year, but their City and County will still be benefitting from those dollars, and they too by use of the services and whatnot provided by those entities.

    It’s a small amount to pay for a very valuable public cultural resource.

    Moreover, if we are to count that piddling amount in this discussion, then we should also count the value of the construction-based and other ancilliary tax revenues. And the jobs created, including their appropriate mulitplier effect. Sales taxes alone are supposed to generate $50 million, mostly going to City of Seattle. That is significant.

  29. oops, it ate my link. Here it is (I hope):

  30. Can you explain how the state sales taxes trickle down to Seattle? Or at least direct me where to look it up? Not sure I’m following you there.

  31. speedcat, those tax streams are being “paid” and then go to paying off the ArenaCo loan. The City property owners will pay something around $3/yr on property taxes for the thing they’re told is “entirely self funding”. Not the greatest expense, but it’s a double-speak by our electeds. The County residents will end up paying less than a dollar more on property taxes. I enjoy for-profit NBA games well enough, I just don’t like the double-speak. By not paying many direct taxes (or having them be funneled into bonds) ArenaCo and any affiliates will be getting large breaks and yet they’ll still need a number of tax-supported of city services. That’s quite a bit of “support” the rest of the citizens will end up paying for via PILOT-type shortfalls in other budgets. I do admit that the State will enjoy sales tax revenues but, and I respect but disagree with Neil’s reading on this, I believe ArenaCo will be claiming the ~$12M in city construction sales tax to help pay their bonds.
    But what I really want to know is more about this LA Live Mall being planned by Chris and if the city is going to be giving a huge tax break to it via this deal. It seems like there’s more than just the ArenaCo arena being planned and I think that needs to be out on the table.

  32. Can some one post a site a source of Hansen mentioning LA Live experience? I recall him saying that you (as in other people) could create an experience like that but that it wouldn’t be him doing it. He also has not bought additional land outside of the arena food print so this is a little surprising. I could have missed it but I have been staying on top of this story as much as possible.

  33. Chris Daniels wrote it, so it must be true.
    He said he and his partners have locked in all the land they need for an arena, plus more land for retail and restaurant space.

    “We would love to of course, some form of mixed use entertainment, like at the Staples Center in Los Angeles…LA Live,” said Hansen.

  34. Interesting toss-in about the saturation point of sports options. Seattle may not be the largest city on the pacific shore but both of these distinct franchises would/could have separate appeal to fans who aren’t being serviced now, thus bringing new spending into the downtown core.
    How much has mariners’ attendance grown since the sonics left town? And the seahawks attendance, too? A wild guess would be, for the former, a bare blip in the first few years, to a minus in the past two years. The latter is virtual sellout. Sounders fans are unique and healthy bunch – tho for argument sake say there is a potential cross-over of 15%, fans who would choose another option if it was available.
    Then there is the rest of the Pacific northwest who are willing to drive the I-5 for pro sports. I have crossed the border 4x this spring/summer so far to catch the M’s; i would do the same for NHL hockey. My Canucks are sold out and too expensive. I’d possibly go to 1 or 2 nba games a year too.
    You’d attract easily a crowd of 10% Canadians in the first few years of nhl hockey, and maybe half that for canadians who miss the grizzlies. Then you’d have those instant rivalries that attract travellers, like portland, san francisco/san jose…
    Lastly, while i do sense a few people here are totally anti-stadiums for rich athletes, i don’t think all of those who want some serious, thorough study done on the finances and risks/rewards are in that category. With the economics the way they are and what we’ve learned from past blunders, having these studies done prior to the commitment is the least our elected officials can do.

  35. The Seattle Times is, I think, doing Seattle a favor. Instead of standing on the sideline and cheering every move Think Big made, as the Bee did, the Times is casting a skeptical eye at the Seattle deal. I think that’s a much better approach.

    After reading the Times’ “top five” article, I’m leaning more towards thinking the Council will approve Seattle’s plan.

    I really do think the I-91 questions are mostly answered. They wanted a rate of return equal to or greater than US Bonds? I think they got one. There will probably be other legal hurdles, but contrary to some comments at the Times, this is nowhere near the worst deals we’ve seen in the last 20 years. It looks above average to me.

    For reference, look at Cincinnati and Indy. Those are terrible deals. If people think Seattle is similar to Indy, they need to research this more.

    Last point: If Seattle doesn’t approve this deal, they won’t see an NBA team for at least a decade. I know how much I sound like David Stern when I say that, and I hate that about my comment. But it’s still true. You have an above-average proposal, some rich guys, at least one available team… If it doesn’t come together now, there’s a good chance it never will. Seriously.

    Good luck to you. Had Sacramento been presented with a similar offer, I’d have been for it. And I was really against the deal Sac offered.

  36. I was with that Times piece until this:

    “Other taxes on arena activity, such as sales and B&O, would go to pay off the bonds and interest. ThatÔøΩs $200 million in financing Hansen doesnÔøΩt have to repay.”

    Hunh? He’d be repaying the (roughly) half of the financing that he’d be paying off with rent. It’s about $100 million that he’d be paying for with the tax rebates.

  37. And actually, since like 70% of the tax money would be from admission taxes, which cut into Hansen’s bottom line, it’s really only saving him about $30 million, plus whatever he saves from a cheaper interest rate.

    All of which makes me wonder why Hansen didn’t just try to do it entirely with private borrowing. But I guess you don’t become a rich guy by leaving even $30 million on the table.

  38. 30 year financing options that come with public bonds that commercial bonds/loans wouldn’t allow. Also, Hansen says the city’s numbers are overly conservative and he won’t end up paying any Imputed additional rent… if true that means he gets $200M in bonds (that really boil down to tax-free status) for rent payments that are $25M NPV.

  39. Right Neil. Sorry. I should have said city/county tax-free status above. Maybe you’re more familiar with the PILOT loans and federal requirements but they seem to be used mostly on bonds repaid via property taxes. Are there other repayment strategies that give fed tax exemption on the bonds ? Obviously the property taxes are only a small portion of the total repayments.

  40. Basically, the rule is that you can’t use tax-exempt bonds for things that will be paid back by a private operator, only for things paid off with tax revenue. So if half the money comes from taxes and half from rent, the rent had to pay off taxable bonds, but the taxes can be used for tax-exempt bonds.

  41. Chris Hansen ran through some more I-91 calculations on his website yesterday. This time he even provides a spreadsheet of his payments (not itemized by source though). He still doesn’t like the idea of giving the city credit for the $200M checks cut to him at the start and then calculating the return above debt service costs.
    The main problem that seems to be causing so much confusion for people is that the City and County are raising debt to fund their contribution and as such are not investing “cash” from the general fund. As such, there is no “cash” investment on which to calculate the “cash-on-cash” return required by I-91. Thus, the mistake that most observers (including Chris Van Dyk) keep making is to wrongly assume that the $200 million in debt financing is a cash investment and therefore reach the dubious conclusion that the City of Seattle has to earn a 30 year treasury return on the entire $200 million investment after accounting for the City’s debt service costs.

  42. “Can you explain how the state sales taxes trickle down to Seattle? Or at least direct me where to look it up? Not sure I’m following you there.

    Posted by Neil deMause on July 15, 2012 07:20 PM”

    Check out this link – many of the things that WA State spends tax revenues on are actually benefitting local jurisdictions. Hospitals. Construction projects. Education. Unemployment payments. Housing subsidies. Airports. Highways. Mass Transit. Even welfare payments. Seattle is the biggest local jurisdiction, so gets the biggest piece of that pie. Just sayin’.