AEG drops out of Seattle arena renovation bidding, says city was unfair to them

With a decision expected in later this month by the Seattle city council on which competing developer was going to be selected to enter negotiations on a renovation of KeyArena, one of the two bidders made the whole thing moot yesterday by withdrawing its bid, saying the city’s financing plans were “unrealistic”:

In a letter to Seattle Mayor Ed Murray, Seattle Partners said it believes it has the best plan, but it raised significant questions about whether the project can be completed by either group.

“We fear the City is driving toward an unrealistic financing structure, and we believe the City has failed to conduct a sufficiently thorough, objective and transparent process to properly evaluate the respective strengths and weaknesses of the two proposals and, most significantly, to identify the proposal best positioned to deliver a project consistent with the community’s interests,” the letter read.

Okay, let’s read between the lines a bit here. That bit about an “unrealistic financing structure” may refer to pushback on the proposal by Seattle Partners (a group led by arena management giants AEG) to use $250 million in city bonds to raise money for the renovation, to be repaid partly by $5 million a year (increasing by 2% each year) in rent, and partly by ticket, business, and parking taxes that would normally go to the city’s general fund. The other bidders, Oak View Group (led by Tim Leiweke, AEG’s former head), have similarly asked to “identify a mechanism for reinvestment of new revenue streams back into the project,” but didn’t get as far as publicly identifying exactly what they would be asking for.

Lack of a “thorough, objective and transparent process” sounds like whining that Oak View was getting treated nicer than AEG just because AEG spelled out in advance its subsidy demands, which is kind of a fair gripe, honestly. Though taking your ball and going home because you’re expecting to lose is never a good look.

Anyway, sounds like Oak View will now get to try to work out a deal with Seattle over Key renovations, though they still (in theory, anyway) need to compete with Chris Hansen’s proposal to build a new arena in SoDo. One hopes that by the time that decision is made, more of the financial details of the Oak View plan will be made public, since it sounds like there would be some tax kickbacks involved (as there would be for Hansen’s plan) — the idea to leverage better offers by starting a bidding war for Seattle arena plans remains a good one, but whether any of the proposals will be actually good for Seattle residents has yet to be determined.

Atlanta picks car-rental taxes as way to raise $142.5m to give Hawks for arena renovations

Back last November when Atlanta Mayor Kasim Reed announced plans for the city to pay $142.5 million toward renovations of the Hawks‘ arena, and the city council promised to take up the proposal promptly, it looked like the deal was going to sail through. Except that it turned out nobody had quite figured out where the actual public money was going to come from, something that didn’t get worked out until yesterday, when Atlanta and neighboring College Park agreed to throw a bunch of airport rental-car taxes at the problem:

The $192 million renovation will be paid for, in large part, with an extension of a tax on rental cars.

With the rental car lots sitting within the College Park city limits, College Park has long-shared the tax profits with the city of Atlanta.

After months of negotiations, both cities have agreed to continue doing that for years to come giving Atlanta the money it needs to pay for the renovation.

So, basically, Atlanta and College Park have been collecting taxes on car rentals at the airport and using them for … something (WSB-TV didn’t find this detail worthy of reporting on), and now instead of either continuing to use the money for that something, or using the money for something else, or just cutting taxes on airport car rentals so visitors don’t have to schlep around the city looking for better rates, they’ll start giving the money to the Hawks instead. Which enables the cities to call this “no new taxes,” even though an extension of an old tax really is functionally the same as a new tax, and I don’t really have to explain this to you, do I?

Anyway, $142.5 million in public money being transferred to the Hawks’ owners, check. As I noted last fall, it’s hardly the worst sports subsidy deal in Atlanta’s history, but that’s not saying much.

Detroit political candidate sues city over using school taxes for Red Wings arena

A Detroit resident running for city clerk has filed suit against the funding mechanism for the new Detroit Red Wings and Pistons arena, claiming that the city’s development agency illegally siphoned off tax levies meant for another purpose without getting the public’s approval:

D. Etta Wilcoxon alleges in a federal lawsuit filed Thursday in U.S. District Court that the Detroit Downtown Development Authority and the Detroit Brownfield Redevelopment Authority have violated her right to vote by attempting to use tax revenue from an 18-mill DPS levy “for a different purpose” without first obtaining voter approval from Wilcoxon and the other registered voters.

The grab violates Michigan’s General Property Tax Act, the lawsuit alleges.

This is confusing, because the whole Detroit arena deal funding scheme is confusing, so let’s revisit it briefly: The DDA has been collecting property taxes and using them to pay down school construction debt, but is now going to siphon off a chunk of that and use it to pay down arena construction debt instead. Then the state is reimbursing the DDA for the money, so really the subsidy is coming out of state coffers.

Still, the DDA is undeniably using money that was approved for another purpose, even if the state is paying it back, so Wilcoxon’s lawsuit has maybe a leg to stand on? Why she’s only filing it now, three months before the arena opens, is less clear — though it may have to do with that whole “running for city clerk” thing — and if she’s successful it’ll be the city and state scrambling to find a way to raise $300 million, not the sports team owners, but, sure, challenging maybe illegal use of public moneys is always fun.

In other news, the Detroit city council is still considering a tax abatement for a Pistons practice facility, which would cost the city about $20 million. Oh, and the teams showed some journalists around the arena construction site recently, leading the Free Press reporter on the junket to enthuse that the place will be “at once intimate and airy,” which is not strictly impossible — you could have an intimate seating bowl and spacious concourses, say — but is also exactly the kind of PR gibberish that teams tend to spout, so it’s probably best to be skeptical, especially when the actual photos accompanying the article show the exact same “wall of suites topped with cheap seats a mile from the action” design that every arena seems to have these days:

Basically, don’t believe anybody about anything, because people are horrible and will lie to your face, and most journalists will repeat whatever those people say because that’s what they see as their job, or at least all they have time for. The end of the world really can’t come soon enough.

Most new taxes will go right back to Pistons, Detroit News calls this “big win” for public

Time for today’s episode of poorly explained tax revenue implications of new sports projects! Our contestant is the Detroit News, with its headline:

Pistons, concerts could be big tax win for Detroit

That is quite the promise! How does News reporter Louis Aguilar work that out? Detroit has a 1.2 percent “jock tax” on athletes and entertainers who play or perform in the city while living elsewhere, and that, say Pistons officials, would provide the city with about $4 million a year in new income tax revenue, assuming all the concerts that would have gone to the Palace of Auburn Hills relocate to the new Detroit arena with the team if that arena is eventually demolished. That’d be worth about $60 million in present value, so: moneyz!

Of course, the city of Detroit is paying the Pistons $34.5 million to move in with the Red Wings in their new arena, so most of that big tax win will be going straight back to the team. It still means that, if the estimates are accurate — they were done by the Pistons, remember, and a tax attorney way down in the 15th paragraph of the News article notes that many entertainers and athletes may have tax shelters set up to avoid paying full jock taxes — the deal to bring in the Pistons was worth it for the city, if your definition of “worth it” is giving up most of the tax benefits you’d normally get from a business relocating to your city in order to get the business to relocate in the first place.

Also, of course, there’s the little matter of the $50 million in land that the city sold to the Red Wings for $1 to make the arena happen in the first place, plus the $266 million that the state of Michigan is spending to move two of its sports teams and a bunch of concerts from one part of the state to the other, and … I’m not sure what headline I would have gone with, but “big win” probably isn’t it.

Foes of $70m Cavs subsidy file repeal petitions, city won’t accept them, all hell breaks loose

As expected, members of the coalition opposing the deal to give Cleveland Cavaliers owner Dan Gilbert $70 million in public money so he can build a big glass wall filed petitions yesterday containing more than 20,000 signatures seeking to have the agreement overturned. As not so much expected, the Cleveland city council clerk’s office told them to take a hike, arguing that accepting the petitions would “unconstitutionally impair an already executed and binding contract”:

“A referendum seeking repeal of Ordinance No. 305-17 would unconstitutionally impair an already executed and binding contract. Therefore, I do not accept the petition papers for such referendum,” said a letter signed by deputy clerk of council Allan Dreyer when the petitions were presented to the clerk’s office.

An hour later, a second letter signed by Dreyer, but presented to the groups’ leaders by council president Kevin Kelley, stated the city was “taking custody” of the petitions but added, “do not consider the petition to be filed with the Clerk.”

This did not go over well with coalition leaders Rev. Jawanza Colvin of Olivet Institutional Baptist Church and Rev. Richard Gibson of Elizabeth Baptist Church, who held out their arms demanding to be handcuffed and arrested, saying they had no intention of leaving unless the petitions were accepted. Eventually the council “took custody” of the petitions without accepting them as “filed,” and everybody went back to their own corners to figure out their next steps.

Exactly what the hell the Cleveland council is thinking isn’t clear, since the arena renovation deal would involve county bonds, which are explicitly subject to repeal by public referendum under Ohio law. (Actually the bonds haven’t even been sold yet, as the county has been waiting on the referendum drive before moving ahead with that.) There’s some question as to whether a public vote overturning the bonds could also overturn the agreement between the council and Gilbert over how to use the proceeds of the bonds — in which case presumably the council would need to come up with $70 million some other way — but there doesn’t seem to be any precedent for refusing to accept referendum petitions on the grounds of “go away, kid, don’t bother me.” This was all going to end up in court sooner or later, and it sounds like the smart money is on “sooner” now.

KeyArena reno would use $70m in historic tax credits, sparking economist catfight

More details are filtering out about how the two KeyArena renovation plans would be funded, in addition to the $90 million or so in tax kickbacks that each would require. Today, its that Oak View Group would be seeking to get the arena declared a national historical landmark, which would allow them to request $70 million in federal historic tax credits.

This led to a rare occasion where two sports economists disagree on the meaning of the tax credits, though it’s less a matter of economics than of semantics. In this corner, Holy Cross economist Victor Matheson, who tells the Seattle Times:

“I would not consider that a subsidy for the arena. Because I think that’s a subsidy that you would grant to anything you designate as an historical thing. In which case, it’s not the fact that it’s an arena that gets (the federal tax credits), it’s the fact that it’s historical that gets it.’’

In the other, West Virginia University economist Brad Humphreys, who counters:

“Absolutely, it’s a public subsidy. It’s tax dollars. Forgone federal taxes collected is an implicit subsidy. The only difference between this sort of subsidy and something from the state or county is whose pocket is this coming out of? It’s coming out of the pockets of everybody in the country.”

So who’s right? We’ve been through this before, both with Fenway Park and Wrigley Field, each of which got federal historic preservation tax credits for their renovations. Probably the best way to think of it is that historic tax credits aren’t a special subsidy, but they are a general subsidy — much like apartment buyers getting to deduce mortgage interest on their taxes isn’t a special subsidy to condo developers, but it still does help their bottom line. The only questions then are whether you consider historic preservation to be important enough to be worthy of a tax credit, and whether you consider KeyArena to be historic enough to be worthy of preservation — Matheson isn’t even so sure of that, noting, “I think it’s probably a crock that it should be a historical monument. “I mean, for God’s sake, this isn’t Soldier Field, or Ebbets Field or something. It’s KeyArena. I mean, come on.’’ (Matheson gives the best quotes.)

In any case, this probably won’t enter into the question of which of three arena plans (the two Key ones plus Chris Hansen’s SoDo arena) the city of Seattle rates as best, since it’d be money coming out of federal taxpayers’ pockets, not Seattle citizens’ in particular. But it is a good reminder that there are tons of ways for people who build stuff to use other people’s money to pay for the stuff they build.

New York Rangers to play home game as road team to protect $50m-a-year tax dodge

In what I suppose is a tax dodge but is actually kind of hilarious, the New York Rangers are going to be playing a game in New York City as the road team against the Buffalo Sabres, all because they don’t want to spoil the eternal property tax break they were accidentally gifted 35 years ago:

When the Buffalo Sabres and New York Rangers square off in the 2018 NHL Winter Classic in Queens, the Sabres will be the home team despite being headquartered 385 miles away…

Madison Square Garden, the privately owned Manhattan home of the Rangers and the NBA’s New York Knicks, would risk a lucrative property-tax exemption worth more than $40 million a year if either team plays home games in New York City outside the iconic arena…

“If one or both of said teams shall cease to play their home games in said property at any time, the tax exemption provided herein shall cease immediately and such property shall immediately be restored to the tax rolls,” New York’s Real Property Tax Law states.

You can see why the state legislature wrote the language that way back in 1982: They didn’t want to give the Knicks and Rangers a massive tax break and then have the teams leave town anyway, as they were at the time threatening to do without the subsidy. (Though the bill’s crafters also either neglected to notice or intentionally snuck in language that made the tax break extend indefinitely, something that’s now cost the city government more than $400 million.) But apparently they didn’t notice the loophole of the teams playing home games and calling them road games — it’s not like the NBA or NHL would really abet the teams’ tax dodge by designated all of their games as road games, I don’t think, but…

Anyway, all of this subterfuge, and the now $50 million annual cost of the tax break, could be avoided if the state legislature would just pass a bill to rescind it after 35 years. (Mayor Ed Koch claimed he thought he was approving just a 10-year tax break at the time.) Such a bill is annually introduced to the state assembly by Manhattan assemblymember Brian Kavanagh, and for the fifth year in a row is sitting in committee with no action. With government watchdogs like these, NHL-abetted loopholes are all MSG’s owners need to keep raking in the dough.

Sacramento Kings arena to offer “rich door” for nearby condo owners

Sports venues with separate entrances for luxury-seat holders are old news by now, but sports venues with separate entrances for condo owners across the street from the building, like the Sacramento Kings are about to have — that’s a new wrinkle:

“I don’t want to sound snobby—you could go and stand outside, but why would you when you have the opportunity to go through a VIP tunnel?” asked Christopher Miller, vice president of The Agency Development Group, the broker handling sales for the building. “You’re not going to wait in line, you’re going to walk right in. It’s a level of exclusivity that you and your family are going to enjoy.”

The tunnel, which runs from the residents’ parking garage to the stadium’s VIP lounge, will be accessible to all residents and their guests. Ownership of any condominium at The Residences at The Sawyer, Miller said, comes with access to the VIP lounges and seating for Kings home games. (Concerts, which are generally run by a promoter that rents the arena, are a different story.)

(Nice touch, developer guy, for prefacing your pitch to give condo buyers a special tunnel to go to sporting events without having to rub elbows with the masses with “I don’t want to sound snobby.”)

The Bloomberg article on this is awfully vague, so it’s not clear whether condo owners are actually getting free admission to Kings games, or just the ability to buy tickets for Kings games and go there through your own private passageway. (If the former, presumably the developer is paying the Kings for the tickets.) Either way, this doesn’t seem like the best sales pitch, honestly — how many people are really going to pay enough extra for this to make it worth more than you’d get from just selling those tickets to the general public — but hey, knock yourselves out, developers. Unless any city of Sacramento money went to provide this tunnel access, in which case, ew.

Seattle seems set to approve a KeyArena reno plan, despite unknown public price tag

Things we learn from SeattlePI reporter Stephen Cohen’s article “comparing the proposals” for a new or renovated Seattle arena:

Things we don’t learn:

Fortunately, SBNation’s Sonics Rising blog this week ran a long analysis of the Oak View Group proposal, which notes that though “the financial information section of the proposal was redacted from public consumption” (seriously?), OVG wants to “repurpose some of the tax revenue collected each year on admissions, retail sales, parking, and the leasehold excise taxes they would pay in lieu of property taxes for use of a private building on public lands.” That’s more specific than the “identify a mechanism for reinvestment of new revenue streams back into the project” that OVG listed in its initial pitch, and, as Sonics Rising notes, could amount to a significant public subsidy, though it’s hard to say exactly how much. When Hansen was seeking similar tax kickbacks, just the admissions, property and sales taxes added up to $90 million, so it’s a fair bet we’re talking that same price range here.

Given that AEG’s plan similarly calls for using “revenues that would not exist but for the renovations proposed for the Seattle Coliseum,” neither KeyArena proposal exactly meets the “no public money” pledge that Seattle officials said they were seeking. Of course, neither does Hansen’s, but it still seems a little rash to be committing to a KeyArena plan before running the numbers on how the public subsidy would compare to Hansen’s proposal. (Or how the numbers would compare to not doing any arena building at all, for that matter.) Seattle was looking for a minute there like it was going to do a bang-up job of playing off competing arena developers against each other — if they end up throwing $100 million at a renovation plan just because it’ll make local political interests happy, that won’t be the worst arena deal ever negotiated, but it will be pretty disappointing in a grasping defeat from the jaws of victory kind of way.

Cleveland community groups launch referendum drive to repeal Cavs’ $70m subsidy

As expected, the Cleveland community groups that were calling for Cleveland Cavaliers owner Dan Gilbert to have to put money into community development projects in exchange for getting $70 million in public money for arena upgrades are gathering signatures for a referendum to overturn the plan for him to get the money in exchange for just improving some school basketball courts:

In a news release issued Wednesday, April 26, the groups said they will work to collect 6,000 signatures to “let Cleveland voters have their say about the deeply-flawed deal for the city of Cleveland to spend $88 million of taxpayer dollars on a new glass atrium for Quicken Loans Arena.”

Members of the coalition are the Greater Cleveland Congregations, Service Employees International Union Local 1199, Cuyahoga County Progressive Caucus, AFSCME Ohio Council 8 and Amalgamated Transit Union Local 268.

Past after-the-fact referendum attempts in other cities have failed when courts ruled that there was a no-backsies provision, but it looks like things are different in Cleveland, where county bond issues are subject to referendum approval. The arena money got an “emergency” designation, though, meaning if went into effect immediately … so, we’ll see. The groups have 30 days to gather the 6,000 signatures; no date has been reported for when the actual vote would be.