Sacramento paper says Kings arena won’t cost much in taxes, ignores tens of millions in taxes

Want to read a long, involved article about sports arena finance that tries to clarify things but is only likely to make readers much, much more confused? Dale Kasler and Tony Bizjak of the Sacramento Bee have you covered:

Welcome to Golden 1 Center. That’ll be $18.3 million, please.

That’s how much the city of Sacramento will pay each year to help fund the Kings’ new $556 million downtown arena, set to open Oct. 4.

So far, so good. The original projection was $21.9 million a year, but the city got a 5.67% interest rate instead of an even more extortionate 6.7%, so phew.

The Kings will pay an estimated two-thirds of the debt service through lease payments and property taxes generated by the new arena.

Errrr? The Kings’ lease payments start at $6.5 million a year, and do eventually escalate to $16.7 million by by the end of the lease. but while that may average almost two-thirds of the costs (57%, according to the Bee), it’s heavily skewed toward the distant future, and as anyone who’s taken out a loan (or, you know, handled money) should know, cash flow is way more valuable now than it is 30 years from now. (If you disagree, please lend me $10,000, and I will repay 100% of your costs with a $10,000 check in the year 2046.) So in present value terms, which is how one should be calculating this, it’s a whole lot less than two-thirds.

As for “property taxes” paying for the bonds, I have no idea where that’s coming from. Here’s the actual bond payment schedule, from the city council’s official plan:

screen-shot-2016-09-19-at-7-30-51-am

I guess if you count the increased property taxes coming from the arena as a team “contribution,” then maybe that offsets some more of this. (The Bee counts them at $25 million, but doesn’t indicate if that’s present value or what.) But getting to use your property tax money to fund your construction costs is a rather special subsidy not available to normal humans, so shouldn’t be counted as something that is somehow reimbursing taxpayers for their costs.

Increased parking revenue only has to support about 10 percent of the debt, according to the city’s latest cash flow projections. About twice as much money will come from dollars that will get freed up when existing debt on city parking garages comes off the books several years from now.

What? Taking parking-garage debt payment money that otherwise would have returned to the general fund when the garages were paid off and instead funneling it to pay for the arena isn’t free money — it’s, well, money that otherwise would have been returned to the general fund. It’s good that it won’t have to come from parking meter fees, sure, but it’s still the public paying for it.

What this all adds up to is less “this won’t cost the public much” and more “don’t worry, the amount of public money we projected to pay off the arena will be enough to cover the bills.” Which, to be fair, is what Kasler and Bizjak say in the article, if you read carefully enough. (“City officials say Sacramento can handle the debt with room to spare, and without dipping into its general fund.”) Unfortunately, whoever wrote the Bee’s headline did not read carefully enough, and came up with this:

New Sacramento arena relies on city parking fees – plus lots of cash from Kings

And that, kiddies, is how journalism becomes spin.


7 comments on “Sacramento paper says Kings arena won’t cost much in taxes, ignores tens of millions in taxes

  1. I mean I don’t want to go overboard, but can all these people just be fired? I have no idea why journalists still think they deserve any respect, or that serve any public service function.

    A close friend who covers the education beat at a prestigious public radio station does this exact same shit too. Goes on and on about the benefits of this or that thing, taking words straight from the mouth of the Chancellor of the big University, and just reports them as facts. He is a literally a puppet of whatever organizations have the resources to throw crafted PR statements and positions at him.

    At the same time he of seems to half believe he is the analogue of Woodward and Bernstein speaking truth to power. When I first met him I thought his job must be cool, now I avoid talking about it whenever possible because it just makes me lose respect for him.

    The article discussed above reminds me of him. It is getting to the point where if someone tells me they are a journalist I actively assume they have no critical thinking skills.

  2. Still another news organization claims that properties near the arena have increased in value by a sum total of $180M since arena construction started, and this has increased the collective property tax bill by $1.8M/year.

    While that’s terrific and all, I doubt the arena was solely responsible for all rises in property valuations in Sacramento. Maybe part of them, but even that’s a stretch.

    This is the way it works, though: Anything positive is because of the new sports facility. Every entity that has funded one of these things makes the same claim. New high-rise? Arena did it!

    So if property values are to fall near the old arena, what do we attribute that to? And actually, the way property values in this area at large are skyrocketing, 16% over 2 years seems tepid to me. The value of houses in my neighborhood has easily outpaced 16% over 2 years.

    • I forgot to include this link.

      http://sacramento.cbslocal.com/2016/09/14/golden-1-center-increased-value-of-surrounding-properties-by-180-million/

  3. Nowhere in the article does it mention that the city is projected to have a General Fund deficit of $35 million if “temporary” tax increases are not extended. Note, that $35 million does not include the $18 million needed to service the arena bonds.

  4. It’s really the changes to parking terms I find maddening. Our parking is not now more modern. All they’ve done is figured out ways to charge more people more money to park. “If you don’t use the arena, you won’t pay for the arena” was really all a lie, and they knew it from day one. Plenty of people who have no plans to enter the arena will end up paying part of the costs, and the only “modernization” was “now we have the capacity to charge more.”

    I really feel like many existing businesses will make the ultimate sacrifice for this arena. Many businesses located in the area where parking now costs more are too far from the arena to benefit from it. Restaurants 16 blocks from the arena are too far away; people won’t park there, have dinner, then walk in the rest of the way; but then people not attending arena events won’t go to those restaurants, because parking will be too expensive.

    I think the revenue model you outline in your chart is a fantasy. Yes, I know that’s from an official City document. They’re dreaming.

    They’re also dreaming about the way this will affect traffic. Only this dream will turn into a nightmare.

  5. Parking revenues are already falling at some airports around the country as the use of app-based taxi services grows. The parking business seems certain to shrink as people in the nation’s two biggest demographics — aging baby boomers who can’t drive and millennials who aren’t very car-centric — increasingly turn to services like Uber and Lyft. Downtown commuter parking, upon which the city depends, is also likely to diminish as app-based carpooling expands. And then come the self-driving cars early in the next decade.

    Given those trends, the city’s (and the Bee reporters’) assumption of large net parking revenue increases over the next decade is…well, let’s be charitable: highly suspect. Indeed, it’s not hard to imagine the top-line projected parking revenue increase in the chart above falling to zero even in the years displayed, let alone the 24 years that follow. When I was writing about these issues for the Bee from ’86-’04, a little skepticism and some reporting often showed that city financial projections for these projects were more wish than hard analysis. I guess newspapers, in their financial crunch, have had to shut down all the shit-detectors.

  6. Here’s another thing to consider…higher home prices equals higher property tax equals higher rent. So…what if the good people that were paying $850 a month can’t pay $1300 a month? What if nobody comes up behind them to pay the rent? What if this happens en masse? What if property owners can’t pay their mortgages? Seems like we’ve seen this movie before.

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