Sacramento delays Kings arena vote “indefinitely” while deal is finalized

So that “huge pile” of documents detailing the final Sacramento Kings arena deal really wasn’t ready last week: City officials have now postponed next week’s vote on the plan “indefinitely” while they finalize just what exactly the heck they’ll be voting on:

Nonetheless, officials said they remained confident the deal is moving forward, the delay will be brief and the project’s October 2016 scheduled opening isn’t in peril.

“The definitive agreements are in the last stages of completion and will be finalized soon,” the city said in its announcement.

Soon. Just not any particular time soon.

It’s still pretty likely that all the t’s will get crossed and this will get rubber-stamped by the council in due course, but there’s a reason why final votes are called final votes. You do have to wonder if somebody on the Sacramento city council is looking at that interest rate on the arena loans and blanching.


44 comments on “Sacramento delays Kings arena vote “indefinitely” while deal is finalized

  1. I would hope someone looked at the amount of revenue the City would be required to raise from this project and tried to insert some revenue guarantees, and when the team refused, Council members suddenly grew something that closely resembles a mammalian brain and refused to move forward without such guarantees.

  2. MikeM,

    I think the problem is more along the lines of the amount of free catering guaranteed to the attendees in the mayor’s reserved box.

    It has been 13 months since the tentative deal was reached. Thirteen months and they have not been able to reach an agreement.

  3. You have to think someone is starting to look at the numbers and wondering where all the money is going to come from. By my calculations, if they want to keep this thing revenue neutral, they are about $13.5m short. Maybe they are reconsidering their stance that the billboards/parking/land have little value.

    I also wonder if the EIR is taking a little longer to fix up.

  4. Don’t discount the possibility that the vote for this may get pushed back until AFTER the June 3rd Primary election. One councilmember, running for state assembly, Steve Cohn, put his “leadership” on this deal in the first few sentences of his ballot statement. He’s also running against a fellow councilmember who opposes the deal who has the Democratic party endorsement, Kevin McCarty. Another city council supporter of the deal, Jay Schenirer, is facing a tough re-election campaign- he bought some TV advertising. Another KJ ally, Rick Jennings is trying win an open seat on the council. There are quite a few voters angry about this deal and ready to take it out on supporters of this deal at the polls. But the Sacramento Bee, as the newspaper of record and opinion of the local establishment, won’t tell you that.

  5. And, RA, 13 months after they reached that tentative deal, the deal they’re now assembling is drastically different.

    Term sheets mean absolutely nothing. I can’t believe that people put stock in them at all. There should be some sort of law that requires final deals to look A LITTLE like original term sheets; they’re way off the mark this time.

  6. Knowing the people involved in this, I have little confidence that they are looking at the numbers that matter to anyone outside their circle.

  7. RecallSteveHansen, I also find the timing for when the Bee changed the structure on their commenting system to be highly suspicious. They have wiped out close to 100% of the public debate on this issue.

    They keep implying that the demolition can start the day after they Council rubber-stamps this project — because they WILL approve it, 7-2, after about 30 minutes of “debate”. And yes, since that part is privately funded, they can start demolishing it… Any time they want to, really. But there’s still time to force a vote on the bonds. I’ve said it before: I think it’d take about a week to get the necessary number of signatures, given that they have ONE valid petition to sign, that is.

  8. You know, Neil, looking at the interest rate they’re forecasting… Is there any reason to think that, even though the rates are pretty high, they actually underestimated them, and they could even exceed 7%? That would completely destroy their revenue models. As it is, I think they’re beyond marginal, but at 7%, they realize that maybe there ain’t no way it can work.

  9. Plus you can ask for a TRO/temporary injunction to stop building until EIR lawsuits are resolved.

  10. “Is there any reason to think that, even though the rates are pretty high, they actually underestimated them, and they could even exceed 7%?”

    I don’t have any reason to think that. Do you have a reason to think that?

  11. This is from Cosmo Garvin’s article (http://www.newsreview.com/sacramento/latest-sacramento-kings-arena-deal/content?oid=13342404):

    “That’s because Fehr is assuming a 6.75 percent interest rate—a rate he says is a very conservative estimate. Last year, he conservatively estimated a 5.75 interest rate.”

  12. Well, I can see them being sold as junk bonds, even if they wouldn’t directly call them that. They’ve already been saying A or A-, which if you don’t know how bonds are rated probably sounds just fine… But A- is borderline. Given the speculative nature of the revenue source, I can see how it might come in with a lower rating than that.

    The term sheets don’t require the ancillary development, and the Council has pretty much said that’s the only way this can raise the needed revenues. Maybe that’s spooking investors.

    I don’t have any specific knowledge, but I can use my powers of reasoning to deduce that, yeah, these may be junk bonds.

  13. Also, Neil, I still can’t see how an arena, well, anywhere in Sacramento, turns this into a destination city. This doesn’t turn Sacramento into San Francisco.

  14. Right, but bond buyers don’t care whether the arena works in that respect. They just care whether the bonds get paid off, and with the general fund as backstop instead of just the parking revenue, that makes them more secure, not less. Unless you really think that Sacramento is going to go bankrupt as a result, which while not as crazy as it once sounded, is still not all that likely.

  15. @Neil: I am with you, though there is a reason they are being rated A/A-, there is obviously some concern out there about the city’s ability to pay. I think part of it is that the city has a lot of other obligations it must meet including pensions/retiree healthcare and significant sewer repair work.

    Here is how S&P describes BBB: “Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.”

  16. Neil,

    It was barely a year ago that the city said that it could not pay the required payments to the pension fund, hire enough police officers, hire enough firefighters, and other necessities unless the city raised its sales tax. The city taxpayers bought the gloom and doom talk and raised the rate. Now, there is a surplus – until that tax expires and then they are looking at deficit starting in 2016 and reaching $40 million by 2019. This number does NOT include the arena bonds because they are not yet sold and, therefore, not current debt.

    Will the city go bankrupt when it needs to find $20+ million each year to service the bond? Yes, it will.

  17. Actually, the first tax increase is already on the ballot. In June, the city will be voting to add a parcel tax to keep the libraries open – the first of many to come.

  18. How silly of me to forget that one. Although, I do everything I can to avoid paying it. I make my purchases in the county.

  19. On a side-note, Sacramento recently got an expansion pro soccer team, ostensibly to test the waters for an MLS team. The plan is to build an 8,000 seat stadium at Cal Expo — that’s being done now.

    In the interim, the team has been playing at — and I can barely believe I’m typing this — Hughes Stadium. I bet you’ve heard of that one, Neil. Or not. It was a WPA stadium, holds 20,000, commonly used for JC and HS football games and track meets, as well as a much larger track meet once in a while. The Sacramento Solons used to play there 35 years ago — it was an awful venue for baseball, especially AAA baseball.

    They’re averaging 18,500 attendance at Hughes Stadium — you read that right. The new stadium holds 8,000.

    Doesn’t this seem like an “Okay, wait a minute”-moment to anyone else? Just play the games at Hughes, and build a 20,000 seat stadium at — wait for it — on the 100 acres next to Sleep Train Arena. The infrastructure is there; the parking is there; the freeway offramps are there. It’s apparently going to be popular in Sacramento; doesn’t this seem like the time to reconsider the current plans?

  20. I’m not as optimistic as some of the other commenters about the reasons the city and Sacramento Basketball Holdings haven’t finalized the deal. My guess is that SBH is holding out for more concessions from the city.

  21. kbredman, you are right. They say the devil is in the details, and now would be the time for SBH to say, “Just one more thing; no one signs a lease that doesn’t have out-clauses…”. Yeah, you can get “99.9% done”, and 1) have that not really be the truth, and 2) even if it is the truth, that final .1% tears down 20% of the deal.

    I don’t believe they’re just dotting Is and crossing Ts. I think most of the negotiators are saying “Now wait just a cotton-pickin’ minute here…” All except KJ, that is. He’s probably trying to buy more stuff so he can give it away even as we speak.

  22. Mike M- That is one of the things that has always bothered me. Supporters all like to bring up the fact that the kings are supposedly on the hook for any costs for future improvements. If the Kings are not tied to the arena sufficiently, what would keep them from telling the city “No, you guys pay for it or else we just go somewhere else.” I’m sure the Kings are looking for ways to wiggle out of that one.

  23. Arthur S: All of those “guarantees” are in the non-binding term sheet – another detail that supporters of this boondoggle don’t want mentioned too often.

  24. Frankly, I don’t see how you assemble a 35 year lease and not have out-clauses. I know I wouldn’t sign one. I am confident the Kings wouldn’t sign on either.

    We’re just speculating on the reasons here, but when they first said the Kings were guaranteed to be here for at least 35 years under the terms of this deal, I realized that’s not possible. People who think that is possible are just burying their heads in the sand. I doubt there’s a legal way to guarantee anything like that.

    On a side-note, the Feds just announced they are partnering with Sacramento and West Sac to plan the trolley system. The planned route for that trolley is 1 block south of the current light rail system for about 1/3 of the new system’s route.

  25. Sure there are legal ways to do that, MikeM. Just make the Kings owners agree to sign that if they break the lease before the 35 years are up, they have to repay the entire cost of the bonds, with interest.

    (The tricky part is making them sign it, agreed. But it’s legal.)

  26. Neil, You owe me a keyboard. I was taking a sip of coffee when I read your last comment.

  27. Yeah, and Indianapolis got the Pacers to sign an iron-clad deal just like that, too.

  28. Every one of these deals has out clauses. Even ones where the team is promised (and receives) the sun, moon and stars. I kind of suspect Sacramento’s negotiators weren’t expecting there to be out-clauses. “Wait… You might not be here for 35 years?”.

    If that’s what this turns out to be and our Council is balking, well, I haven’t been giving them enough credit. But I’m still sure KJ is saying we should give them everything they’re asking for.

  29. MikeM, I doubt the city council is involved at all at this stage. It is all Shirey, Dangberg, and others on their staff.

  30. MikeM, The Republic are rethinking their stadium based on the attendance: http://sacramento.cbslocal.com/2014/05/05/record-crowds-have-sacramento-republic-rethinking-bonney-field-capacity/#at_pco=cfd-1.0

  31. The Warriors had a similar setup to what Neil is talking about. Their original lease on the current arena that was renovated in 1997 was for 10 years but allowed for the Warriors to leave early as long as they covered the remaining debt on the arena.

    While it wasn’t written into the original Key Arena lease, the Sonics wound up doing what the Warriors could’ve done. They paid off the Key Arena lease when they negotiated the buyout that allowed them to move to OKC.

    At the end of the day, leases are just there to make a region or entity financially whole in the event that the tenant wants to leave early and usually with a few cherries on top for good measure that make the region or entity even better off than they would be if they adhered to the language of the lease. For example, AEG may conclude that they make an extra $3 million a year as a result of having the Clippers as a tenant over what they would make if they had to fill those dates with other events. Hypothetically speaking, if Chris Hansen was in position to buy the Clippers, he’d have to buyout the Clipper lease that has 9 years remaining on it. Multiply 9 x $3 million and you have $27 million. If Hansen tells AEG that he will give them $40 million to escape the lease, AEG would be ahead by $13 million and would most likely take that deal.

  32. Well, not to change the subject too much, but maybe the Warriors are planning to pay off the Oracle arena debt on their way out, too. They may just view that as a sort of relocation fee. Seeing as how they’re trying for a 1 year lease extension right now and aren’t really answering questions about the $62M, maybe they just don’t feel like debating this issue in the press.

  33. The final details have been settled, and the vote will be on May 20.

    http://www.sacbee.com/2014/05/09/6393594/arena-deal-completed-heads-to.html

    There’s a substantial flaw in this article, though, and it’s contained in this paragraph:

    “The broad outlines of the deal were unveiled three weeks ago by city officials. The hundreds of pages of documents released Friday include fresh details on how the city expects to finance its $255 million share, most of which is based on mortgaging its parking operations. The Kings will contribute $222 million toward the project, in addition to the $36 million they’ve spent buying crumbling Downtown Plaza.”

    Nope. The City is not mortgaging its parking operations. Not even close.

  34. Just the EIR Comments and responses document is nearly 900 pages long. How do Councils hold a single meeting and even get 1/10 of the way through a document like that?

    Anyway, here’s a link to all the May 20 documents.

    http://portal.cityofsacramento.org/Arena/Reports-and-Resources

    Enjoy. Or something.

  35. I’m looking at this document here:

    http://portal.cityofsacramento.org/~/media/Files/Arena/May%2020%20Staff%20Reports/05132014%20Council%20Sup%20Agenda%202014-00354%20Lease%20Revenue%20Bonds.ashx

    Pages 9-10…

    This financing plan relies on parking meter revenues, which is not legal. Off-street and enforcement revenues? Legal. Parking meter revenues? Not legal.

    Our City charter states:

    “The money required to be deposited in parking meters and pay-by-space/pay-and-display machines as provided in this title is hereby levied and assessed as fees to provide for the proper regulation and control of traffic upon the public streets, to provide for public vehicular off-street parking facilities and to cover the cost of the supervision, inspection, installation, maintenance, control and use of the parking spaces and regulating parking of vehicles in the parking meter zones. (Ord. 2000-028 § 2(c)(xii); Ord. 2000-007 § 13; prior code § 25.08.142)”

  36. MikeM,

    They wrote themselves a CMA clause in this:

    “Many of these measures will require the policy support of the City Council in order to be implemented. The various measures are not, however, being developed merely to raise revenue for the ESC. They have been and are being formulated by the Public Works Department overtime in the initiative to “modernize” the Parking System and make most efficient use of this city asset.”

    In other words, we have to change the city code to allow this.

  37. That’s one part of the code they can’t easily change. I think after prop 13 passed, some cities decided to raise revenues by hiking parking rates. Then a second prop passed that made that illegal, and the only way to get rid of that law is with a public vote. I think. I don’t know how to verify that.

  38. Just because it is illegal, against city policy, or any number of other prohibitions, does not mean that they will not vote to do it. Did you notice that the electronic sign lease document is not available?

  39. I did notice that in one of the eir responses that they expect basketball game attendees will start arriving at 5. Neil, I don’t expect you to know this, but the freeways in that area are currently a mess from about 4:45 until 6 every weekday. Someone’s going to sue over that one.

  40. RA, that goes beyond “policy support.” It actually requires a change to the City Charter, which absolutely is not just “policy support.” I hope someone sues over this; they’d win.

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