Kings arena boosters think numbers are just things you make up because they look pretty

If you were wanting a primer in “ridiculous economic claims by sports venue advocates and how to debunk them,” Sacramento Mayor Kevin Johnson’s The4000 booster club is here to help. Yesterday the group issued a report claiming that spending $258 million in city money (really more like $334 million, but who’s counting?) on a new Kings arena would generate $11.5 billion in economic activity over 35 years — then managed to undercut its own numbers in the fine print:

[University of Maryland economist Dennis] Coates, who hasn’t yet seen the Sacramento study, added: “I’m pretty sure people eat and drink even if they don’t have a team in town that night.”…

The study said the arena and the surrounding development at Downtown Plaza would lead to $230 million in annual spending, not counting arena ticket sales. Factoring in inflation, that would add up to $11.5 billion in 35 years. Taking out the dollars that would be spent “regardless of the existence of the new facilities,” the net impact is reduced to an estimated $25 million a year, or about $1.25 billion over 35 years.

[Study author Cathy] Dominico [of Capitol Public Finance] defended the use of the larger number, saying she thinks the net figure is a gross understatement of the project’s true value because of the “catalyst” effect it would have on downtown.

I’ve seen an awful lot of economic impact reports, and agree with Coates that “basically they are just PR documents,” but this is the first time I’ve seen one actually calculate how much arena-related spending would be cannibalized from elsewhere in the city and then ignore that. If you have numbers for a “catalyst” effect, then by all means use them, but counting up every dollar spent in and around an arena and then declaring all of it to be the result of the arena when your own study shows that nearly 90% of it would be redirected from elsewhere … think we can get Cathy Dominico’s face on this page? I mean, what more could she do to deserve it?

Cathy Dominico, managing partner at Roseville-based Capitol Public Finance Group, which wrote the report on behalf of The4000 arena support coalition, said if anything, some of the estimated economic impacts in the report are on the conservative side.

“It’s spelled out to show we’re not using ridiculous numbers,” Dominico said.

For a report from the reality-based community, we’ll have to turn to the Sacramento News & Review’s Cosmo Garvin, who helpfully provided a long, in-depth analysis of the Kings arena numbers yesterday that included the following:

  • The city of Sacramento is planning to backload its arena construction debt, starting with $6.5 million a year in bond payments in 2016, and eventually rising to $23 million by 2035. This is in part so that about $3 million a year that’s currently being used to pay off downtown parking garages can be shifted over to help pay off the arena.
  • Mayor Johnson has claimed that these bond payments won’t affect the city’s general fund, but Sacramento State University economist Rob Wassmer says, “This is wordplay. The city’s current general fund will not be hurt by this—but the city’s future general fund will be hurt.” That’s because the new revenue (from ticket taxes and other fees) is only expected to amount to about $6 million a year, which isn’t even enough to pay off the arena bonds in the early years, much less the later ones. The city says that $6 million number will grow as city parking revenues grow, but unless you assume that all that growth comes as a result of the new arena, that ends up being money that would have gone into the city’s general fund if not for the arena debt. “There is a diversion of future general-fund dollars to this arena project that could be used for other city expenditures, or cuts to taxes or fees for city residents or businesses,” says Wassmer.
  • As for the projected economic-impact figures, “I’m open to some wild ideas, but that one just defies belief,” arena economic impact expert Geoffrey Propheter says of an earlier study’s claims of $7 billion in economic activity over 30 years. “A number like that gets pumped into the political system, people start parading it around as if it were gospel. Pretty soon, it’s ’Let’s rubber stamp this sucker.’ That’s a travesty.”
  • “Economic activity” just counts up how much money is spent within a city’s limits. How much of that would actually accrue to the people of Sacramento via new tax receipts that could be spent on actual services (or tax cuts)? Garvin notes that if the arena generates as much in sales taxes as the city’s current biggest sales-tax generator, the Arden Fair mall, it would add about $4 million a year in sales taxes: “Not nearly enough to cover the debt service on the arena, but every little bit helps.”

Perhaps Garvin’s most important point, though, is that even if there are some public benefits to spending money on a Kings arena, you have to compare them not to a baseline of doing nothing, but of what else you could be doing with the same money. “You’ve got to ask, ’Could we do something else with that $258 million?’” says Propheter. “Politically, that’s not a very appealing question, and no one asks it.”

It’s an important answer, though, to The4000 director Joshua Wood’s assertion: “I would honestly challenge anyone from the opposition – what is your plan for generating $11.5 billion?” Given that there’s a non-zero economic benefit just to lowering taxes — let alone doing something more targeted with the money that might generate more bang for the buck — it seems something worth exploring.

And as Propheter tells Garvin, it’s worth exploring even if it takes some time: “I’m a big fan of having a long, drawn-out conversation when you are making a policy choice to spend $258 million. It’s frustrating when these things get pushed through without a discussion.”

 


14 comments on “Kings arena boosters think numbers are just things you make up because they look pretty

  1. $230m in annual spending??? That would mean the average fan spends between $300 and $400 PER GAME on top of ticket price!!! Yeah right.

  2. Doctor Evil has to be in charge of The4400. That’s all I can think.

    http://www.youtube.com/watch?v=cKKHSAE1gIs

  3. They talk about the catalyst effect this will have on downtown, which I think is a joke (past experience in other cities shows these districts empty out when there’s no event), but even if that was true, this new estimate of $11.5B just sounds like they’re trying to justify more subsidies for the surrounding development to me. They’re just dragging out any old number they want.

    I don’t think this will motivate tourists to come to Sac, and I don’t think Sacramentans will always head there as their first and only entertainment option. It’s a bogus number; I’d bet the net impact will be that we’ll probably get 5-6 more concerts every year, and that’s it. The end. We may get $30M in increased economic activity in the city as a whole, and that’s it.

  4. Even if there were a catalyst effect, it doesn’t justify using the pre-substitution-effect impact number. It’s like they’re saying, “There will be $230 million in spending, only 10% of which will be new spending, but we haven’t accounted for any ‘catalyst’ spinoff — so let’s just assume it’s a wash and call it $230 million.” It’s a bit like me spending ten times as much as I can afford on a car, and assuming without doing the math that I’ll make it back on better gas mileage.

  5. Richard, they’re using in their calculations 300 nights/year, which works out to $51 in spending per person, per event, assuming 300 events with an average attendance of 15,000.

    Never mind they’ll never attract over 200 events, and never mind that the average attendance will ever hit 15,000. That’s beside the point. Oh, wait, not it’s not.

  6. The Bee *had* a Facebook entry for this article here:

    http://www.sacbee.com/2013/12/19/6015640/why-studydoesnt-seearenagridlock.html

    But now that FB post is gone.

    Last I saw it, the article was just being ripped apart. Every comment pointed out the article’s flaws. The Bee finally said, yeah, that’s enough — and took down the post.

    So I’ll point out the problem: About 75% of arena-goers will end up on the “boat section.” The EIR says the average wait time to get off the freeway there will increase from the current 31 second to the new 10 minutes. So, okay, it’s “only one intersection!”, but it turns out it’s quite a pain to avoid that intersection as well. Using one of the available alternatives just throws you into the same grid from a starting point that’s slightly farther out, and involves more surface streets.

    Nearly all the responses had a tone similar to what I’m striking here, so the Bee removed the post. Ah, the beauty of FB.

    If people hit the boat section at 5:45, they’ll either have had their dinner way before they left town, or they’re having an arena-dog. They won’t be hitting a downtown restaurant — there’s not enough time.

  7. These studies are usually bogus, but what seems to have escaped notice is that arena backers have now officially conceded that the deal will produce essentially zero economic benefit. http://www.thecaliforniafix.com/thecaliforniafix/2013/12/19/the-no-growth-giveaway

  8. Here is something funny that I noticed in Section 4-10 of the DEIR. The traffic study impact report covers the time period from 4:45pm to 5:45pm and 6pm to 7pm. Why leave out the 15 minute period from 5:45 to 6pm? Peak traffic time? I’m not sure but this is certainly something I plant to comment on.

  9. You know, if environmental impact assessments were structured in the same way economic benefit studies (claims) for sports arenas are, the EIA would have to account for all the carbon dioxide emitted by 20,000 guests plus the stadium employees and assume that they would all be running at maximum speed not just for the 2.5 hours the game goes on but continuously for 365 days over 35 years (obviously, these folks would not be breathing at all if it weren’t for the existence of the sports business). And since this is just “typical impact” of the arena itself, you’d have to multiply that carbon output by at least 200 to capture all the spin off benefits – err, make that impacts – that the team is directly responsible for.

    And the sad thing is, I’m probably being conservative in my estimates of the amount of multiplication effects constructed for sports economic impacts…

  10. Mike:

    Catalyst discussions are fraught with unknowns and assumptions (see above). One thing they never even attempt to quantify is the number of customers who might have gone downtown for entertainment had the arena not been in use that night who stay away to avoid the traffic/hassle/parking charges.

    Even in basketball/football/baseball mad cities, the number of people who identify as fans is a very small percentage of the population. For the rest, it’s just added hassle and expense.

  11. One major problem with Fehr’s report on the financing of the arena that I have yet to see covered anywhere is the income he is projecting from the parking.

    The original Walker report on the parking revenues indicates that the total revenue from the parking projected for 2012 is $27.7 million (see page 76 of the December 13, 2011, city council agenda attachment http://sacramento.granicus.com/MetaViewer.php?view_id=22&clip_id=2856&meta_id=377142). This includes both the garages, enforcement, and meter revenue. The city has acknowledged that it cannot use the meter revenue for this scheme due to state and city laws. Subtracting out that number, the revenue drops to about $24 million. These numbers also reflect revenue all of the parking garages, include the 3,700 spaces (half of the total garage spaces) being given to the kings.

    Looking at the debt financing plan from the December 10, 2013, council meeting, the projected numbers are fairly close to actual revenue for 2011-12: off-street parking revenue of about $18 million, on-street parking revenue of about $5 million, and enforcement revenue of about $8 million (see page 8 of the agenda attachment http://sacramento.granicus.com/MetaViewer.php?view_id=22&clip_id=3375&meta_id=408521). Again this includes all of the parking garages. Fehr then uses $26 million of gross revenue from parking to show that the city can handle the debt (see pages 14 through 18 of the previous document).

    Yes, the city had a gross revenue from off-street parking and enforcement of about $26 million in recent years. However, half of the off-street parking will not generate revenue for the city as it is being given to the kings. Assuming that the revenue is evenly distributed across all garage spaces, which is not a valid, about $9 million of that $26 million will disappear.

    Maybe I am missing something, but these numbers don’t make sense to me.

  12. Hey Joshua Wood (protege of Chris Lehane), I’ll take up your challenge. The answer to how you generate billions in new economic activity in Sacramento is to build a landmark destination attraction with an arena at Cal Expo. That would bring tourists to town, maybe not downtown, but it would certainly give the region an economic boost. And, I’m sure there are reliable studies that show what that the economic impact of a theme park is to a local economy. So, you lose on that point.

    Since the Sac Bee has decided to in essence censor reader comments by eliminating anonymous posting, this site is the only one where a full and critical analysis of this arena scam can be discussed. There are many topics to discuss but let me start with these top ten.

    1) Team KJ and the City of Sacramento has been engaged in a “perception becomes reality” strategic propaganda campaign that leaves the public believing that this is a done deal. However, in court the city attorney argues that all they have is a “non-binding terms sheet”. So which is it and let’s hope the judge sees through the charade.

    2) There appears to be another lawsuit pending regarding a backroom deal between the city and the Kings regarding some form of subsidy guarantee from the city to the Kings regarding the valuation of the team at $400M vs. the actual purchase price of $535M. More to come on this.

    3) Craig Powell of Eye on Sacramento is furious that the city is accelerating their bond sale to May of 2014 prior to a potential June ballot measure on the arena. This is clearly an invitation to a lawsuit for voter disenfranchisement should the deal be done prior to a public vote. Very shady tactics.

    4) The EIR document which cost $1M and was paid for by the Kings is probably tainted with bias regarding the traffic issue. It will be interesting to see what Cal Trans has to say. Common sense would say that 7,000 vehicles exiting downtown parking garages all at once after an event is going to be a nightmare and no, patrons won’t be taking light rail, busses, trolley’s or bicycles.

    5) The recent land asset substitution announcement is all about the fact that the Haggin Oaks land has increased in valuation which would be too much for the city to provide as a subsidy. The change from a ground lease at Downtown Plaza to city ownership of the land probably has everything to do with a future eminent domain action regarding the Macy’s building.

    6) Why is the city spending $5M now to upgrade parking meters if there is no firm deal in place?

    7) Why is the city now trying to redirect TOT funds from the Community Theater project to use for the general fund backfill? Is this change of priorities palatable to the community? Probably not.

    8) The city doesn’t have clear title to some of the pledged land assets going to the Kings.

    9) How are they going to reissue the Natomas land bonds with insufficient collateral? The ticket surcharge is not going to come up with $50M.

    10) If the team doesn’t improve soon, attendance projections will never materialize.

    More to come.

  13. In the recent stress-test that the City published, it claims that part of the revenue to repay the bonds will come from the parking meters. This does violate City and State laws that will be difficult to overturn.

    In addition, the 3,700 parking spots we’re donating have a claimed value of $0. However, the term sheets also say the remaining off-street parking spots — approximately 3,700 of them, as it turns out — can be bonded to the tune of $212.5M, regardless of the fact that these structures have about $50M in bonds to repay against them.

    In effect, the 3,700 spots we’re donating have a claimed value of $0, but the remaining spots have a claimed value of about $262M. I’d like to know: Which is it?

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