No, Hansen’s Seattle arena wouldn’t really cost Seattle $731m

Cleveland Stockmeyer, one of the Seattle attorneys who unsuccessfully sued the city to block Chris Hansen’s proposed arena deal, is back with a report on what he says Seattle’s losses would be from the project. And it’s a whopping big number:

In the newly-released report, a group called Sonics Without Subsidies claims Seattle is giving away more than $731 million in subsidies for Hansen to build his SoDo arena — and they’re asking city leaders to change the deal.

$731 million is, needless to say, unexpectedly high for a project that will only cost $490 million to build total, that will only involve $200 million in public spending, and that after tax revenues and rent payments are shuffled back in forth, I’ve estimated previously would leave taxpayers with at worst a $21 million loss. So where does Stockmeyer’s hired economist come up with $731 million?

The answer, it appears, is it depends on what you mean by “loss.” Seattle’s Initiative 91, passed back in 2006 by city voters, requires that the city turn a 2.7% annual profit on any investment it makes in a pro sports facility. Under Hansen’s deal, the city would take out $200 million in bonds, which would be repaid entirely by Hansen, so there would be no cost to the city. But — here’s the catch — if you count the $200 million as a city expense, then city is getting stiffed its 2.7% annual return on investment. If you do the same math for the missing annual return on tax credits and property tax breaks Hansen would be receiving, then subtract the $92 million in land value that the city would be getting back in the deal (Hansen would buy the arena land and give it to the city), voila! $731 million!

In other words, notwithstanding the scary headlines, the “gross shortfall” that Stockmeyer’s report refers to isn’t actually money that Seattle would be giving the Hansen; it’s money that Hansen would have to give Seattle in order for the city to turn the kind of profit that I-91 required, if you count bond sales that the city doesn’t have to pay off as an “investment.”

None of this should be news to the Seattle media, since it’s exactly what Stockmeyer in his lawsuit earlier this year, though he didn’t put a dollar figure on it then. And the shoddiness of I-91’s “return on investment” formula has been established for even longer; as I wrote in July of 2012, when it was Hansen who was using bizarro math to claim that the city would rake in a ton of money from the deal:

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 was a dumb argument, and Hansen himself later backed away from it. Stockmeyer, though, seems to be deliberately confusing people about what his economic study means. To repeat: Hansen would be paying off Seattle’s bonds, and (mostly) repaying his tax breaks, but he wouldn’t pay it back and then give Seattle extra money to turn a profit on the deal as well. Whether you think this is a good deal is open to interpretation — Stockmeyer clearly doesn’t think so, two city councilmembers voted against it, and I’m on the record as being pretty meh about it, though “meh” is still better than most arena deals from where I sit. But it’s not a $731 million “subsidy” or “tax break,” no way, no how.

7 comments on “No, Hansen’s Seattle arena wouldn’t really cost Seattle $731m

  1. Neil deMause,

    Btw Seattle isn’t providing the entire 200m they are at most 120-147, King county is providing the rest up to 200m (no more) I-91 is a city law and only applies to city portion of the deal.

    Thus the study is invalid cause it assumes that city of Seattle is providing everything. They would have to re-due the study to only include Seattle’s involvement not King County.

    Hope that helps.

  2. Chris Hansen lives on the Internets in Sacramento. He’s used in Sacramento by pro-arena subsidy people to justify the city trying to make up to $25M a year in bond payments with $9M in reliable revenue.

  3. Mr. deMause, is this group’s study (and also your own analysis of the possible costs to the city) based on the initial deal that Hansen made with the city? Or the revised one that the city council approved?

    I ask because Chris Van Dyk (stadium-funding foe and champion of I-91) opposed the initial deal, but gave it his okay after Hansen made some concessions.

  4. I think it’s the final deal. But Van Dyk notwithstanding, the final round of concessions weren’t that significant.

  5. The real failure is that the proponents of I-91 were incapable of declaring victory more than a year ago, and still aren’t.
    I, as a Seattle arena proponent, was very happy to this plan showed up a couple years ago. This could have turned into a competitive advantage for Seattle.
    Imagine the citizens of some other municipality pointing at Seattle’s pending agreement with Hansen as a model, or a floor. There isn’t any cash going out of the city or county general fund, and the repayment is contained in the activity directly related to the facility. A bunch of financial risk is shifted into the potential franchise owner.

    Just doing some basic math and declaring a meh victory might save the next Sacramento from mortgaging a city asset for 50 years, and have the cash go out. That wouldn’t pass the laugh test in Seattle, I know I wouldn’t support it. There are far too many people with actual money around here to have to accept a deal like that.
    And that really is Seattle’s competitive advantage.
    Setting that bar high, knowing that is just not achievable in many existing markets.

  6. I think Seattle’s competitive disadvantage is that they’ve saddled themselves to a potential owner rather than an actual owner…. and that potential owner made some heavy-handed moves to try to influence the official process (even if a veneer) that owners publicly abide by (at least enough to have several meetings drawn out over many months).

  7. Mr. Baker:

    I would agree…. I tend to be opposed to most stadium deals on the basis that they constitute welfare for billionaires. This deal is not entirely devoid of public money, it’s true, but I do think Seattle has a very good chance to see a net financial benefit from this deal. If that happens, the city would be gaining an entertainment attraction at relatively modest cost (only the opportunity lost by tying up borrowing capacity for 25 years or so).

    In my book this is a good deal for the city. And it’s far and away better than any other North American professional sports stadium deal I’ve seen in nearly 20 years.