Kings delay release of arena funding details, as city’s interest costs go through roof

Sacramento officials and the owners of the Kings yesterday announced that they were postponing the release of a huge pile of documents — seriously, that’s what the Sacramento Bee article says, a “huge pile” — on the team’s final arena deal, so that they can “spend more time to perfect the provisions and details.” I.e., it’s not ready yet, it’ll be ready when it’s ready. This is a little bit of a problem, since the Sacramento city council is set to vote on the deal on May 13, and proposals are legally required to be made public 10 days before a vote, meaning the huge pile will need to emerge by no later than tomorrow if the Kings don’t want to risk a delay in the council decision.

Cosmo Garvin of the Sacramento News & Review, meanwhile, has taken a look at the bits of the deal that have been released so far, and contrary to initial reports that it would be slightly better for the city than the original deal since the Kings would pay more rent, he says it could actually be even worse than the initial plan. His reasoning goes as follows:

  • The city would have to pay $21.9 million a year in debt service, compared to $17 million a year in the original plan, because projected interest rates have risen from 5.75% to 6.75%.
  • The team’s rent would rise only from $4.7 million a year to $6.5 million a year, though that latter figure would increase further starting in 2020. And the team would no longer share profits with the city, meaning that $4.7 million could have turned out to be more in time.
  • The city’s added cost of $4.9 million a year is more than the team’s added annual contribution of $1.8 million. By a huge pile of money.

I’m not entirely sold on Garvin’s argument — I’d like to see a present-value comparison of the old and new rent payments over time, for starters, and you know what I think of profit-sharing deals and the machinations that teams can use to avoid paying out on them. Still, that interest-rate hike is a huge hit, and is definitely going to make it harder for Sacramento to cobble together enough money to pay its arena bills each year. Maybe the council should identify a hospital it can sell, just to be safe.


33 comments on “Kings delay release of arena funding details, as city’s interest costs go through roof

  1. The City is going to have to net an increase of $31m/year in tax revenues just to break even. $22m for the bond payment, plus $9m to replace the parking revenue. If the entire operation grosses $300m and I vests $0 more going forward, they might be okay. I doubt that will happen. This is using present values. Oh, and with a far smaller parking operation, because they’re giving away half of their parking capacity. I think they’re screwed.

  2. “The City is going to have to net an increase of $31m/year in tax revenues just to break even. $22m for the bond payment, plus $9m to replace the parking revenue.”

    This is double-counting, no? Because the $9m in redirected parking revenue will go towards the $22m in bond payments?

  3. I don’t think so. Parking now produces a $9m profit. That needs to remain true, plus they need to make that payment of $22m.

  4. @Neil:
    MikeM is right, the city is on the hook for an annual payment of $22m in debt service. $9m of that will be paid using parking revenue (assuming they actually get that much in parking revenue). Taking that $9m in parking revenue away from the general fund, leaves a $9m hole in the general fund that must be backfilled from some source. Thus, the actual amount they need each year to keep services at the same level is $31m.

  5. Um, no. They owe $22m in debt service. To pay $9m of that, they take $9m in parking revenues out of the general fund. That leaves $13m in remaining debt service + $9m in parking backfill = $22m.

    Unless you’re saying they need $31m *including* the existing parking revenues, in which case, yes. But the amount of new funding needed is $22m.

    Really, it all just comes down to “you need to pay for what you spend.” Shuffling money around between pockets is always a wash in the end.

  6. I think you have to look at it from the perspective of the city’s stated goal, which is to leave the general fund whole, so if we look at is this way:
    $100m in your general fund, you take $9m (parking revenue) from it to pay a new debt of $22m.
    That costs you $9m.
    Now you have to pay the remaining new debt of $13m.
    That costs you $13m
    Now you have to find money to bring your general fund back up to $100m
    That costs you $9m

    $13m+$9m+$9m=$31m is your cost.

  7. The part you’re forgetting, Neil, is that the parking currently produces $9m for the general fund. To keep that up and service the debt, the arena and parking operations have to produce $31m, total.

  8. I hope everyone realizes this latest delay is yet another pre-planned chess move to reduce their risk exposure to public scrutiny. This is nothing but a game to Team KJ. If they are now at 6.7% interest rate I imagine that rate will be higher in November when they go to market.

  9. Sacramento can’t afford an NBA franchise. It’s just not going to work.

  10. Kevin/MikeM:

    The $9m appears to me to be contributed annually to the general fund, it’s not a one time revenue stream. We are assuming that it will continue to generate revenue at that level (more or less) for the term of the arena deal/debt.

    It really doesn’t matter if they are using that money to reduce the arena debt service by $9m directly or for some other city purpose… it doesn’t change the actual debt service related to the arena project. If the arena related debt is $22m per year, it’s $22m per year, whether they put $9m in parking revenues directly toward it or use “other funds” to cover that portion…

    If they rewrote the deal to eliminate the parking revenue contribution, the amount the city has to cover wouldn’t change… and it wouldn’t save them $9m in the process either.

    Just sayin’

  11. “I don’t think so. Parking now produces a $9m profit. That needs to remain true, plus they need to make that payment of $22m.”

    It is more common than not, these type of city owned structured parting lots are subsidized by the city as well, so it is not as much profit as money that would be either not paying for maintenance, paying back part of it’s own cost or repaying the citizens for what the city spent money on already.

  12. I am against the arena deal and feel the Sacramento Bee is doing a lousy job of reporting the details, but I am certainly understanding by reading this thread of comments how hard it is to get across to the general public the details of the plan and what it is actually going to cost them.

    I happen to agree with those who are saying the cost is $22 and not $31. You do need to backfill that $9 million from parking, but that ‘s because you used it to reduce the remaining debt payment by that amount. Total new debt is still $22 million.

    They have had how long to work this thing out and are still working details at the last minute? I wonder how many concessions the Kings are squeezing out of the City with this move?

  13. Lance,

    The city will continue to own and operate the parking that will be used to subsidize the arena. Currently, there are about 7,200 off-street parking spaces whose revenue can be used for things other than the support of the parking. These 7,200 spaces generate $9 million for the general fund. The maintenance, operations, and other costs are largely supported through parking fines and on-street parking. By law, on-street parking revenue can only be used to support the parking. I am not sure, but I don’t think there is a law restricting the use of the fines.

    The construction of the arena will destroy about 1,000 of these off-street spaces and the city is giving the kings the rest of the 3,700 spaces located at the site of Downtown Plaza which reduces the inventory of off-street spaces to provide this revenue to 3,500.

    The city is claiming that revenue from 3,500 spaces and the $6.5 million from the kings will fully fund the bond servicing without having to tap any further into the general fund. I don’t see how.

  14. Arthur:

    It is the uncertainties and “to be agreed in future” terms of deals like these that the team owners live on. I’d be willing to bet that sports cartel members earn more gilt from the ‘last minute’ things that the parties agree to work out than they do off the major terms of the deal. They know once they’ve gotten some idiot politician to sign an agreement that there isn’t anything they can’t squeeze out of them at a later date if they need/want to. Just the thought of having an arena deal that the mayor/council has signed in a glorious public ceremony blow up in their faces is enough to drive them to give away anything to ‘save’ it… hence the note about selling hospitals or closing libraries and schools etc.

    If stadium and arena deals couldn’t be signed without all details being worked out first, I bet there would be far fewer boondoggles. Then again, I guess you can say the same thing about hospitals, schools and freeways too.

  15. So now because they can’t meet the 10 day deadline the council vote will be delayed until after May 13. Would like to know who’s calling the shots here, the NBA, the Kings, the bond underwriters? Team KJ can’t walk away now so I guess his rule that “we’ll negotiate on even terms” is now just a memory. However, I still think this is all a charade to fool the public they really worked hard to put these deal done. If as Granger said they are 99.9% in agreement then that .1% must be where the bust of KJ will be located.

  16. The Bee just posted that the vote has been pushed back because they cannot finalize the agreement by 6:00 PM today. http://www.sacbee.com/2014/05/03/6375700/arena-agreement-not-finalized.html

  17. I’m amazed you guys in Sacramento make a profit on your city-owned downtown parking. Seattle can’t even manage that.
    http://seattletimes.com/html/localnews/2020288718_parkinggaragexml.html

  18. “Sacramento can’t afford an NBA franchise.”

    I didn’t realize they were buying one.

  19. ChefJoe,

    I would not call the $9 million profit. The city code allows revenue from off-street parking to be redirected to something besides parking operations. Because this redirection is allowed, it is done and now the general fund relies on that revenue. That does not mean that the revenue from the other sources are enough to cover expenses. In fact, they are adding parking meters, increasing meter rates, and extending hours and enforcement for on-street to meet those expenses.

  20. RA, I don’t think that is quite right. Parking meter revenues cannot go to the general fund. Off street revenues can, but not on street.

  21. I didn’t meant that they were using on-street parking for the general fund. They are increasing parking meter rates, extending hours where payment into the meter is required, and expanding enforcement – the “other sources” – to meet the expenses for operation and maintenance of the parking. The $9 million is not profit that is not needed to parking expenses but an allowed redirection that they are taking advantage of.

  22. They have to show, though, that actual parking expenses are going up in order to make changes like that.

  23. They have shown a deficit in the operations and maintenance justifying the increases, including all of the new “smart” meters they are installing that will notify enforcement when they expire.

  24. I still think the amount of $31m is the cost to the city, if I knew more about accounting I would probably have a better explanation:

    $100m in your general fund, you take $9m (parking revenue) from it to pay a new debt of $22m.
    That costs you $9m.
    Now you have to pay the remaining new debt of $13m.
    That costs you $13m.
    Now you have to find money to bring your general fund back up to $100m
    That costs you $9m

    So yes, the new arena debt is $22m, but to keep your revenues whole and intact, as the city has pledged to do, will cost you $31m. That $9m hole you create in the general fund has to come from somewhere.

    I also want to echo other sentiments about where in the hell is all this new money supposed to come from?

  25. Let me try this one last time:

    You have $100 in your checking account, and $9 in your savings account.

    You write a check for $22, and help cover it by moving the $9 from your savings account to your checking.

    How much money have you just spent?

  26. The savings account analogy doesn’t work. The $9M is revenue currently used in the city general fund and Sacramento was promised that the $9M would be backfilled so it wouldn’t impact the city’s budget. So, the City would need to come up with $22M in debt repayment at $9M in backfill each year.

  27. In your scenario $22, but let me put it in Arena terms.

    You have $100 in your checking account, and $9 in your savings account but if you don’t keep $9 in your savings account you will receive a $100k fine (i.e. you have promised all along to backfill the general fund for the lost parking revenue, you are using to pay for your new arena).

    You write a check for $22, and help cover it by moving the $9 from your savings account to your checking.

    I have spent $22 at this point.

    But guess what I now need to find another $9 for my savings account so I don’t incur a $100k fine. How much has this whole thing cost me?

    $31

    Now we can argue about whether the city will be able to actually backfill the missing parking revenue or if they even care, but regardless this is what they have promised to do. They need $31 to keep everything revenue neutral.

  28. Then I have a solution: Backfill the $9m from the parking revenue with $9m from the general fund. The parking fund is now made whole, and the general fund is out $22m, minus the $9m it got from parking, plus the $9m it backfilled to parking. Thus: $22m owed.

    IT’S MAGIC!

  29. The thing is that the $9 million is part of the existing revenue stream. You theoretically will be getting that back every year anyways. So the new cost is still $22 million. The moving of existing money from one pocket to another doesn’t cost you anything. Now if you want to argue that giving away half the parking to the Kings is going to knock that down to $4.5 million and so new cost is actually $26.5 million then you will get no argument from me.

  30. Hiya Sacrmento…Colorado Springs here. We’re having a stadium rammed up our butts as well by our Strong Mayor Steve Bach and the big pockets Jenkins family. Keep up the good fight…we sure are going to.
    Take care
    BOHICA…in CS.