As expected, the Sacramento city council voted last night to approve the Kings arena term sheet by a 7-2 margin; only councilmembers Kevin McCarty and Darrell Fong voted no, on the grounds that they wanted more details and more time to examine the deal. The four-hour meeting was mostly a celebration of Mayor Kevin Johnson’s plan, with supporters donning white “Crown Downtown” t-shirts and doing, um, this.
Only 13 of the 58 people signed up to speak at the hearing (in two-minute increments) were opposed to the deal, but that’s not necessarily a sign that the deal is popular with the public. Rather, the t-shirt-wearing supporters had jammed the hearing room by 5:30 (the hearing began at 6:30), and anyone who showed up after that was not only barred from attending, but from signing up to speak. Which if it sounds vaguely familiar, should.
One of those shut out was Eye on Sacramento president Craig Powell, who earlier in the day had issued a detailed 30-page report on the city’s proposal, calling its financing plan “seriously flawed” and saying the rush to vote without sufficient time to analyze the deal raises “significant dangers to the city and taxpayers of stifling public input in these decisions.” Among the issues addressed by the nonpartisan watchdog group:
- The official $258 million figure for the public contribution to the arena omits the value of the 3,700 parking spaces being turned over gratis to the team, as well as the value of several electronic billboards that would be gifted to the Kings, plus additional tax breaks and infrastructure costs. Including those raises the total public subsidy to $334 million.
- The financing plan, in which future parking revenues would be funneled to a nonprofit corporation and be repaid in part by more future parking revenues, “exposes the city’s general fund to potential liability, ties up the city’s TOT [hotel tax] revenues, involves very high interest rates, is of a type (garage bonds) that are causing problems in other cities and involves the payment of over $80 million of additional interest in order to secure $24 million in lower payments in the first eight years of the bonds – a horrible deal for taxpayers.”
- Asked whether the city of Sacramento’s general fund would be on the hook to pay for the arena bonds if parking revenues weren’t sufficient, city attorney James Sanchez replied, “The city has some ultimate responsibility for payment of the bonds.” Meanwhile, the city staff report on the arena insists, “The revenue bonds would not be a debt obligation of the City.”
- While the city report touts the lower interest rates that would be made available by using a nonprofit corporation and backstopping the parking money with hotel taxes, the projected interest rate on the bonds would still be very high by current standards (5.5 to 5.75%), which will mean even more parking revenue would be needed to pay off the bonds.
- The figures for the projected new revenue expected to fill in the parking revenue siphoned off to pay the arena bill are nearly all “shaky and/or overstated.” In particular, “with the city giving away one-half of its garage parking spaces to the investors (the 3,700 parking spaces at Downtown Plaza), how in the world is the city going to service current debt payments on garage bonds, pay debt service on $221 million plus of new arena bonds and also backfill $3 million to the city’s general fund?”
- There’s the likelihood of an initiative or referendum campaign to repeal any Kings arena funding deal. (Indeed, at least one speaker last night promised to lead such an effort.) If this happens, suggests EOS, it could “secure funding from Seattle sources if the NBA board of governors turns down the request to relocate the Kings to Seattle.”
Finally, the report pointedly cites Harvard stadium researcher Judith Grant Long’s new book, in which she writes: “[T]he burgeoning number of public finance crisis with roots in sports facility deals points to a clear need for better understanding of the long-term risks and implications for taxpayers. Yet this kind of long-term financial analysis has been absent from much of the public discourse associated with the latest rounds of subsidies for major league sports facilities.” Hint, hint.
The council, though, didn’t get the hint, or at least didn’t want to hear it with an NBA vote looming next month on moving the Kings to Seattle. And that decision is even less likely to turn on whether the Sacramento arena plan will cost taxpayers, or whether it received due diligence — the NBA doesn’t care about any of that crap — and more likely to focus on one issue: Which city represents a more lucrative future for the NBA?
It’s going to be a tough choice, as the league is now presented with two arena deals that, from its perspective, would be a huge step up over the current Kings situation. On Seattle’s side is that it’s a bigger market, that its plan is more completely signed off on by government agencies (though an environmental review is ongoing), that the ownership group has been well-vetted, and that the NBA will no doubt want to show that it’s willing to reward cities that offer to erect new arenas to lure teams. On Sacramento’s side: The Kings wouldn’t be competing with as many other local sports options, the team’s owners would be saddled with less stadium debt, and the NBA will no doubt want to show that it’s willing to reward ciies that cough up money for new arenas to keep teams. A tough decision, yes, but having too many bidders for your services is the kind of problem that it’s good to have.
If there’s one potential fly in the ointment for the Sacramento plan, it’s that what was voted on last night wasn’t actually a financing plan, but rather a nonbinding term sheet — the council will still need to vote again in coming weeks or months to formally approve the arena funds. Given last night’s vote, that looks pretty likely to happen, but “pretty likely” isn’t the bird in the hand that is the Seattle deal, especially with the possibility of a referendum challenge in Sacramento as well.
Right now, I’d say that the Seattle sale vote is too close to call, by which I mean, “Who the hell knows what 30 NBA owners will do when they get in a room, or why?” If I had to pick a dark horse outcome, it’d be that maybe they’ll do nothing: Postpone the vote until a later date, and wait to see whether the Sacramento plan survives further scrutiny and a possible referendum. Then if Sacramento puts its money where its mouth is, it’ll be a safer decision to tell the prospective Seattle ownership group, “Sorry, next time.”
That’s not a slam dunk for the NBA, either: The Seattle group could get tired of waiting and back off its arena plan, and at best it’d likely mean another lame-duck year for the Kings in Sacramento while everyone waits out the decision. And it’s also always possible, let’s not forget, that the Maloofs could tell the league that if the team has to stay in Sacramento, they’re not selling — they’d be pretty dumb to do that at this point, but dumb sometimes seems to be their middle name. Still, though, calling a timeout would have the advantage of forcing the two cities to fight some more to distinguish themselves as the better candidate — and if there’s one rule of staging a bidding war, it’s that the more bidding you can encourage, the more that you win the war.