Seattle study showing SoDo arena fiscal winner actually doesn’t show that, says study author

I’ve had this study of the projected economic impact of the two competing Seattle arena proposals bookmarked for a couple of weeks now, waiting for a chance to dig into it to see what it actually says. Since I’m on the road now, I’m especially glad that the Seattle Times’ Geoff Baker has gone and done it for me, with the upshot of: Even the economists who conducted the study say it doesn’t really declare either plan the winner.

Chris Hansen and his Sodo arena group paid $16,000 for the “Seattle Arena Public Finance Analysis” study by UW Evans School of Public Policy and Governance professor Justin Marlowe and three graduate students. Sodo arena backers trumpeted the 3-to-1 advantage.

But a review by The Seattle Times found a high potential for fluctuation in the study — including use of raw property and sales-tax data without deeper “opportunity cost” context, an approach two sports economists say favors the Sodo group’s proposal

Up to now, though, the study’s claimed 3-to-1 advantage for the Sodo site — a gap Marlowe pegs at $68 million — has garnered the most attention.

“I get why everyone is focused on that number,” Marlowe said. “But again, the second part is the really important part. What if what’s on the table changes? Then you get different numbers.”

In short: The “opportunity cost” bit is that the study assumes nothing else would be built on the Sodo site without an arena, and if something were, that would generate tax revenue that would make redoing KeyArena look better by comparison. Also, the study didn’t account for payments in lieu of property taxes that the Key developers would be responsible for on the value of their improvements to the property — which could be as much as $657,000 a year (present value in the neighborhood of $10 million), or could be less, nobody really knows.

In short: Who the hell knows? This is one problem with economic projections: They’re inherently guesswork, and sometimes the error bars overlap to such a point that there’s no clear winner. This is actually kind of a good sign — it means that having a bidding process for a new/renovated arena has both developers upping their packages to be in the same range — but it also doesn’t make the decision any easier. It may come down to which site city officials decide is the best location from a planning standpoint for an arena, since the cost will be roughly the same; or to which site has the most politically connected people pulling for it, which would be disappointing but typical, and really not the worst thing since at least neither plan is much worse than the other. (Though it’s still entirely possible they’d both be mild money losers for the city — which would also be disappointing but typical.)

FC Cincy mulling Kentucky tax kickbacks to pay its entire stadium cost, and other week’s news

All the news that wasn’t fit to print this week:

  • FC Cincinnati now wants the Port Authority of Greater Cincinnati to own its stadium since Hamilton County doesn’t want to. (Does “own” mean “pay for”? Reply hazy, ask again later.) Or maybe Newport, Kentucky, since, according to team president and former city council members Jeff Berding, that would allow the team to recoup its entire $100 million through tax increment financing kickbacks of property taxes paid on the property. How would it generate a whole $100 million in TIFs? Reply hazy, ask again later.
  • Would-be Seattle arena builder Chris Hansen hired University of Washington public finance professor Justin Marlowe in May to compare the economic impact of his Sodo arena proposal to that of the KeyArena renovation plan, and he has issued his report, which says that the Sodo plan would create three times as much tax revenue for Seattle ($103 million over 35 years vs. $34 million for Key). On the other hand, the Key plan would include some kind of sharing of arena revenues, though that wouldn’t kick in until the Key developers got their share, and, yeah, basically it’s a muddle. On the whole, it seems to give the edge to Hansen’s plan, if only because that arena would pay property taxes, but I’d need to sit and break down the math to say exactly by how much, and I’ve been waiting for time to do that all week, so clearly it’s not happening. Reader exercise!
  • Oakland A’s executive VP Billy Beane promised that once the team gets a new stadium, it will stop trading all its decent players once they start to get expensive: “There’s only one way to open a stadium successfully, and that’s with a good, young team. … Really what’s been missing the last 20 years is keeping these players. We need to change that narrative by creating a good team and ultimately committing to keep them around so that when people buy a ticket, they know that the team is going to be around for a few years.” Which could make sense if a new stadium draws enough fans that having a winning team boosts revenues enough to pay for player salaries, though we’ve heard this song and dance before elsewhere.
  • The Nashville Sounds‘ new stadium was supposed to cost taxpayers $37 million, but it ended up costing $91 million.
  • What does $74 million in public subsidies buy Minnesota Timberwolves fans and staff? New seats, new restrooms, new locker rooms, an ice floor that doesn’t leak, two new loading docks, and a big glass wall, because everybody’s gotta have one of those.
  • The athletes’ village from the 2016 Rio Olympics is now a wasteland of unsold condos, because everything the Olympics touches turns to trash.
  • A homeless camp has arisen on the site of the planned Las Vegas Raiders stadium. Make your own metaphors.

Seattle mayoral candidates all like hoops, mostly favor Hansen arena plan over Key remodel

KCPQ-TV in Seattle has polled this fall’s umpteen mayoral candidates on where they stand on a new arena, and if you don’t want to bother with clicking through, the survey says: They all want the Sonics to return (and, presumably, are against kicking puppies) and almost all prefer Chris Hansen’s Sodo arena plan to Oak View’s KeyArena remodel, including early frontrunner Mike McGinn (who, if he sounds familiar, it’s because he was already mayor of Seattle once from 2009-2013). Though the other reported frontrunner, Jenny Durkan, had only this to say:

I grew up a Sonics fan and I’m still a Sonics fan. I want an NBA team back in Seattle. I am for whatever proposal gets the Sonics here the fastest.

Of course, this could all be moot by then if current mayor Ed Murray and the city council finalize an arena deal before November, which may or may not happen. At least the city of Seattle is hiring some professional help to negotiate its memorandum of understanding with Oak View, which is always a good idea, as those sports developer lawyers will eat you for lunch otherwise.

Seattle mayor calls Hansen arena plan “technically alive,” no, that’s not a compliment

There’s been a lot of back and forth lately about whether Seattle Mayor Ed Murray has really decided on renovating KeyArena over approving Chris Hansen’s plan for a new SoDo arena or is just keeping his options open, but this latest quote from Murray sounds pretty decisive:

“The SODO plan is still technically alive and the council, [street] vacations are in the council’s purview, not ours. Work could be done on doing it. If we were going to send it back down to the council though, I would want a very different process than was used the first time,” Murray said.

“Technically alive” is about like “mostly dead,” and while that means Hansen can still hold out some hope, it’s a pretty clear sign that a Key renovation is Murray’s first choice. Which may not matter all that much — the council still has to weigh in, and with Murray not running for re-election his opinion may not carry as much importance — but it’s still not good news for Hansen (who yesterday said he’s still willing to “be patient” in his quest for his own arena).

I’m not so sure that tipping the city’s hand is the best way to go about this — one of the two Key renovation bidders has already dropped out, meaning that the other bidder Oak View Group and Hansen are the only two developers left to play off against each other in an attempt to get the best deal possible for taxpayers. This may not matter too much in terms of getting a new NBA or NHL team — OVG’s Tim Leiweke is a veteran sports guy, and besides which has already invited Hansen to join any ownership group — but it could make a difference in, say, lease terms, which is a very big deal indeed. You’d think any mayor worth his salt would know how to say, “We’re still keeping an open mind to all options,” but then, mayors about to leave office often are thinking more of their next jobs than their current ones, so maybe not.

Would-be KeyArena renovators seeking $40m in city tax kickbacks, $50m in federal tax credits

The day after arena managers AEG pulled out of bidding to overhaul Seattle’s KeyArena on the grounds that it was unfair their competitors hadn’t had to reveal financial details of their bid, lookee what happened: The city of Seattle went and released some of Oak View Group’s financials, including this:

The key lines are under “Sources,” where it’s revealed that OVG would be seeking a $50 million federal historic tax credit (previously reported as $70 million), plus $40 million in “city tax reinvestment of NASC revenues,” which presumably is bureaucratese for “tax money kicked back from arena property, sales, ticket, etc. taxes.” By comparison, AEG was looking at closer to $100 million or so in kicked-back taxes, so this is less than that, and possibly a small enough amount that the city can earn it back by stealing business from entertainment venues outside of city limits, though without a real economic analysis that’s more than one sheet of paper — as well as a lease explanation that guarantees that OVG would pay all maintenance, operations, and future upgrade costs, as the city itself requested — it’s tough to tell exactly how this would work out for the public purse.

It’s at least possibly not a terrible deal, though, which is better than most cases — as I always say, there’s a price point where the value of a new arena and the presence of a team (assuming OVG can get one, which seems a pretty good bet eventually) can make a small enough subsidy worth it. Here’s hoping the city of Seattle can stick to its guns, and be ready to walk away if the fine print on OVG’s plan turns out to make it too rich for their blood.

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.

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.

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.

Two developers propose KeyArena redo with no public money, except for maybe some public money

As promised, the city of Seattle received two proposals for renovating KeyArena this week, and—

One of the groups interested in renovating KeyArena for NBA and NHL is prepared to spend more than $500 million on a complete overhaul of the 55-year-old facility.

The Oak View Group (OVG), based in Los Angeles, has produced a $564 million plan it says can have the arena renovated by approximately October 2020 – leaving it ready for the 2020-21 NBA or NHL season – spokesperson Steven Gottlieb said—

Hey, hey, Seattle Times, thanks for reporting what one of the developer spokespeople said, but the city of Seattle has made available the actual proposals, so let’s just go read those, shall we, and see what’s actually in them?

  • The Oak View Group (aka Tim Leiweke and friends) is proposing that $564 million redo, expanding the underground part of the arena — which is most of it — to modernize it for basketball, hockey, and concerts. (And probably change the whole seating bowl, since that’s necessary for hockey.) Oak View promises that the project “will not require any City investment,” with the developer covering all constructions, operations, and capital improvements, as well as paying $1 million a year rent; however, it does note that the city will still own the land (so presumably it will remain property-tax-free) and that “OVG will work with the City to identify a mechanism for reinvestment of new revenue streams back into the project,” which is just vague enough to be slightly ominous.
  • Seattle Partners, aka AEG and friends, aka Leiweke’s former employer, doesn’t put a dollar amount on its renovation plans, except to say that it will be “world-class.” As for funding, the only promise (in the executive summary, anyway, which is all that the city seems to have made available) is that the developers will “guarantee all financing, public and private, through revenues that would not exist but for the renovations proposed for the Seattle Coliseum,” which is usually code for tax increment financing or some similar scheme to kick back taxes that can be claimed to be due to the renovated arena, even if they’re ultimately cannibalized from spending elsewhere in the city.

Neither of these is quite a “no public money” promise, which is what the city was requesting. But they’re potentially close, which is kind of crazy, given that everything we know about arena operations is that spending half a billion or so on upgrading these buildings doesn’t usually generate a great return on investment. But this is a weird moment in the arena biz, what with AEG, Live Nation, and Madison Square Garden (who would be Leiweke’s financial backers) engaged in a nationwide war for control of the concert industry, meaning that they could be more likely to overbid in an attempt to lock their competitors out of the Seattle market. That’s an opportunity for anyone doing business with them, and Seattle is smart to be trying to play this for all it’s worth.

In short: This still needs way more analysis of the competing groups’ funding plans, and in particular of how weaselly those weasel words are about arena-related revenue streams. But it’s well worth exploring, since this might be a rare chance for a city to be in the driver’s seat when it comes to getting a new or renovated arena. Getting a team will be another story — hello, Kansas City — but cross one hardball negotiation at a time.

Seattle still debating two arena proposals, because universe has not yet grown old and died

I’ve been trying to compose a post on the latest development in the Seattle arena saga for a couple of weeks now, and have been hamstrung at every turn by the fact that despite a lot of newsprint and pixels being burned on the subject, nothing is actually happening. Here’s what I have sitting in my Instapaper queue:

  • The Seattle Design Commission approved the design of vacating a one-block stretch of Occidental Avenue for Chris Hansen’s proposed SoDo arena, which it already did once before, again sending the project to the city council, which rejected it last time because it was opposed to closing the street.
  • The Port of Seattle says the consultant it’s paying $185,000 for consulting services doesn’t have to register as a lobbyist because it’s not just lobbying on behalf of a KeyArena renovation project (which the Port of Seattle supports because it opposes the SoDo one because it might mess up its truck routes).
  • The Seattle Center, where KeyArena sits, is filing to landmark a bunch of buildings, which could complicate any arena plans there, maybe.
  • The council is studying the best option for an arena, and a local radio host doesn’t think they’re serious about the SoDo one, which is the one he likes.
  • There could be a decision by June. Or not.

Add it all up and … man, that’s a whole pile of nothing. Neither the KeyArena plan nor the SoDo plan sounds either terrible or like a slam dunk for Seattle taxpayers and residents, and given the competing lobbying factors, it’s unclear what it’s going to take to get some resolution. Which isn’t necessarily a terrible thing — neither project comes with the promise of an NBA or NHL franchise, and a new or refurbished arena alone isn’t going to change local lives much. But it does mean I’m going to have to keep reading about this (and hearing from both sides who are really really emotionally invested in this, I get it), so I for one wouldn’t mind at all if the Seattle council just threw a dart or something and got this whole mess over with.