Revised Kings arena deal would cut Sacramento’s losses to $173 million

The Sacramento Kings have announced that they’ve revised their arena deal with the city of Sacramento, and there are more new details than you can shake a stick at:

  • The total construction cost has gone up from $447 million to $477 million, thanks mostly to the increased costs of developing the area around the arena site.
  • The city’s share of the costs will actually go down slightly, from $258 million to $255 million (though with the value of free parking spaces, billboards, and other infrastructure, the actual public cost is probably more like $331 million).
  • Instead of the Kings paying $4.7 million in annual rent (mostly from ticket tax money), the team will now be committing to a rent starting at $6.5 million a year, and rising over time.

Sacramento assistant city manager John Dangberg calls this a “significant enhancement to our financing package,” and it certainly looks like a better deal for the city, even if it still won’t come close to repaying the $9 million a year (and rising over time) in future parking revenues that the city will be siphoning off towards arena cost, let alone the city’s $13-14 million a year total bond cost for the arena. (Figure on the high side of that estimate, since interest rates have gone up, and the city has acknowledged the Kings will be putting in too much money to allow for the use of tax-exempt bonds.)

There’s a new city council report that spells out the latest agreement — I haven’t made my way through all of it yet, but it does estimate the present value of the Kings’ future rent payments at $157,555,183, which if you take the total public cost as $331 million, would mean that Sacramento taxpayers would only be taking a $173 million bath on this project. That’s better than the old deal, and possibly better than a poke in the eye with a sharp stick, though I’d want to read all the fine print before saying for sure. Not to mention test the sharpness of the stick.

23 comments on “Revised Kings arena deal would cut Sacramento’s losses to $173 million

  1. I think the biggest change here is dropping the idea of a parking non-profit, and canning the idea of donating the parking assets to that non-profit… That always looked like money-laundering to me anyway.

    But the net result of this is that this is now a pure general-obligation bond. They say that the revenue sources for the bonds will be parking net revenues, rent, etc, but in reality, the thing backing this bond is the general fund.

    Also, the borrowing costs increased, so while the Kings say the City’s contribution has dropped, the reality is that the interest rates are now higher — one full point — and as we know, interest rates are the cost of borrowing. I believe the City’s contribution has actually risen, and it’s a lot.

    I don’t think this deal is better or worse; it’s craptastic (thanks, Neil!) either way.

    But about that “parking net revenues”-thing… Doesn’t that mean the $9M/year the City currently nets (from profits on the garages and citations) goes away? And if that net revenue includes money from parking meters, that is not legal.

    I mean, they can go ahead and start the demolition on May 14 if they want. It’s now their property, and that’s their money. But there’s a pretty good chance a court will rule using “net parking revenues” illegal. Since these really are general obligation bonds, though, I’m not sure that makes a world of difference.

  2. I’m hearing that the EIR should be finished this month. I wonder what lawsuits will arise from it. Plaintiffs have 3 months to file I believe. Or is it that a judge has to rule within 3 months?

  3. Trueblood, as you know, that’s a debated point, and the law sure isn’t clear to me. I think that may be behind the rush to sell the bonds on May 13, then knock the building down on May 14; so the developers can say, “Ooops, you guys have a point. Oh well, too late, we’ve already started building.”

    What kind of bonding does the developer have to put up to guarantee the building will be certified LEED Gold? You would think they have to guarantee it will be.

    But that schedule doesn’t seem realistic to me anyway. Are they really that intent on starting this project during Fix50, for example? “Say, let’s take away 3,700 parking spots right while the W-X is torn to shreds. Sounds good!”. Isn’t that an environmental impact in and of itself? I can’t see how they do this before July 1; I think they’re just trying to scare people.

  4. Hrm… the last time you wrote about comparing to a poke in the eye with a sharp stick involved Hansen and Seattle.

    SacBee Headline: “deMause Says Sacramento Deal Better for Public Than Hansen’s Seattle Deal (possibly)”

  5. Oh, so the tax payers will only have to take a $173,000,000 bath (loss)? ONLY? This project is ridiculous because the numbers are constantly changing. I don’t think the tax payers are paying attention and they have no idea how this will affect them in the future. If the Kings had a successful past, that could possibly change my mind. Look up the King’s history since 1951. You can find out what losers they have been historically. Wikipedia says it all.

  6. My guess on why they had to chang the financing structure is that potential bond-buyers only want to purchase debt with a secure funding source, the general fund is that source, much more secure then some parking revenues from somewhere.

    A person has 30-days to file a lawsuit after a FEIR is approved. The law that supposedly applies here requires courts to resolve all legal challenges within 270-days, but I don’t think the courts are actually complying with the law, separation of powers and all that stuff.

  7. Adding to what KevinS said, I think the plan to transfer the parking to a nonprofit probably failed a mock trial. It looked like money laundering to me. Bond rating would have been too low. There are also two ongoing suits — that judge will issue an injunction to halt a bond sale if he feels the suits have merit.

  8. What really bugs me about Bee coverage here is they don’t understand that bonding against the parking is now dead. Not many people read the City documents — they only read the Bee, which is somehow not seeing the huge fundamental changes in this proposal. How the Bee cannot understand these changes strikes me as willfull ignorance.

  9. One bit of news came out during the Council hearing last night… The bond rating is supposed to be A or A-. That’s pretty low, and partially explains the 6.7% interest rate.

    Any guesses as to how long this takes to get downgraded to junk?

    The City is still anticipating selling $298M in bonds, partially to “finance the financing”. 36 years. We’re so stupid. I’d say this thing is a lock to hit the general fund.

  10. MikeM:
    The Bee and city staff are complicit in this scam. Only positive spin,no critical analysis or debate. I’ve read that at that interest rate the bonds are already close to junk. But the real issue is the need for short term financing because the city can’t go to market for long term bonds until Nov 2014 according to Treasurer Russ Fehr. This is a convoluted mess all around. Despite Dangberg and Fehr statements I think they know the devil is in the details and this deal is far from done. The public needs to wake up on May 1 and raise hell with this incomprehensible financing plan that does put the general fund at risk. BTW, where will the Kings get enough collateral for the reissuance of the Natomas bonds? The payoff is $75M and property might be appraised at $25M. City is tapped out.

  11. Oh and BTW on the bonds the city is not allowed to actually sell bonds until 30 days after they approve the sale. This is so there is time for voters to gather signatures for a bond referendum.

    6.7% is the interest rate, that’s terrible, obviously potential investors don’t think this is a good deal.

  12. I find it interesting that the Bee is now putting forth arguments that were made by STOP, Eye on Sacramento, and the News and Review last year.

    Now they are calling for a value to be placed on the electronic billboard leases, pointing out that other billboards are generating $180K per year each – a gift to the kings of $38.9 million.

    Now they are calling for a value to be placed on the parking profits.

    Now they are calling for the city to look at whether the city will get a big enought return on the investment because most of the return won’t come until after the ancillary development is built, if it is ever built.

    Why could they not raise these issues when they mattered? Now that the vote is only two weeks away, it is a little late.

  13. RA, the Bee does this once in a while. They’ll raise their (very valid) concerns exactly once, and then tomorrow, they’ll be right back to the big lie that these bonds are secured by parking assets. Just watch. I’ve seen this pattern multiple times.

    Someone needs to immortalize this, then compare what they said today to what they’ll be saying on May 13:

    (Note that even the headline on the article belies the article’s contents.)

    Another thing they never talk about: The 100 acres near the arena that the City is giving to the Kings. Apparently, that has a value of $0. A recent Bee article claimed that was part of the deal, but frankly, I’ll be darned if I can see that land mentioned anywhere in any City document I’ve seen. The Bee may have gotten that wrong (surprised?).

  14. KSmith, I think right after the bond sale is approved, they’ll start right in on the demolition anyway, then use that as a weapon to fight back against any bond referendum petition-drive.

    “But we can’t stop now! See? The do-nothings at STOP are already destroying hundreds of jobs!”

    Tell me you can’t see that coming.

  15. Sorry MikeM, but your prescient quote is wrong. It should read:

    “But we can’t stop now! See? The do-nothings at STOP are already destroying thousands of jobs!”

  16. Is it possible that when the City says that the new deal is more secure than the old deal, the City found out that the $212.5M valuation they estimated for their parking assets turned out to be wildly optimistic, and thus they’re now being truthful when they say that revenue-anticipation bonds are more secure?

    If they found out the valuation was $100M, a $212.5M bond issue against that would have carried a 10% interest rate; they’d have been pure junk.

    I think that’s what happened.

  17. MikeM, this scenario seems very likely. The City and Kings ownership likely had to re-work the numbers to get the bond rating just enough above “junk” to be plausible. Hopefully we’ll see a bond issue referendum materialize…

  18. I think it is more likely that they discovered that they could not issue bonds that were not directly backed by the General Fund and get a reasonable interest rate.

    This “deal” is going to bankrupt the city. I hope that the coming tax increases, including the library tax in June, are overwhelmingly defeated at the ballot.

  19. I also think it’s very likely that the City’s net parking revenues will fall drastically once they reduce their available inventory by 2,700 (or is it 3,700?) spots. Yes, there will be more demand for the remaining inventory… But not enough to overcome the smaller supply. I bet even with higher overall demand for parking on event-nights, the City is going to be shocked when they see a smaller operation is bringing in less revenue (not sure why they should be shocked, but they will be).

  20. The parking inventory will be reduced by 3,700 spaces – 1,000 to 1,200 (top of page 6 in the new term overview) destroyed by construction and the rest of the Downtown plaza parking given to the kings (pages 5 and 11). The 3,700 number is from the Walker report.

  21. When I read this article, how come it leaves me with the distinct impression that they will NOT release the document by Saturday?

    We’ll get excuses, though. Never mind, they have to vote on May 13, so if there are delays… Well, no one reads these things anyway, so stop complaining:

  22. I get the same impression. It sounds exactly like the promises and rhetoric that were heard back in March, 2013, when the documents were finally posted on Saturday night of a three-day weekend.

  23. There is a significant difference between the city’s contribution to the arena and the total cost to the city of that contribution. These tend to get muddled up in discussions of the area deal. Most people are most concerned about what will be the total cost to the city. We should focus on that clearly.

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