When TIFs go bad: the Reno Aces story

The Reno Aces, the Arizona Diamondbacks‘ Triple-A affiliate, are getting about a million dollars a year from the city of Reno to pay off their stadium construction debt, and it turns out every single person running for mayor of Reno thinks it’s a bad idea to keep making those payments. Or at least wouldn’t raise their hand at a candidate forum to commit to making the payments, which isn’t quite the same thing, but still.

So what would happen if Reno were actually to default on its stadium commitment? As it turns out, the original stadium deal was to pay off the stadium with the resulting rise in property tax receipts — so-called tax increment financing, or TIF — except that, as is so often the case, property tax receipts didn’t actually go up, leaving the city to fund the stadium debt out of its general fund. That means the city council must vote on making the payments every year, and there’s nothing stopping them from voting “no.”

If that were to happen, we’d enter uncharted waters: As the Reno Gazette-Journal puts it, “Well, baseball could leave. Baseball could also take the city to court.”

This is essentially the same scenario that Columbus was considering with the Blue Jackets last year, except that there it was a good-government group with a broken website that was pushing it, whereas here it’s actual people running for actual office who are threatening to play the default card. I’m kind of hoping they do, not because I have a particular interest in the fate of either the Aces or Reno’s budget, but because it would be extremely interesting to see how a court would rule on the legality of a city stopping payments on an already-built stadium. I suspect you’d see a lot of city attorneys — and good-government groups — poring over a hypothetical Aces v. Reno ruling for years to come. Though in the meantime, it’s still at least a good cautionary tale about the risky nature of TIFs, if anyone is listening.

Final Kings arena plan: Sacramento would take roughly $226m loss to keep team in town

So that’s what the city of Sacramento was waiting for: a Friday afternoon on which to release its revamped Kings arena deal, ensuring that most of the media (and readers) wouldn’t be around to take notice. (Okay, Fridays are also the last day on which they can meet the legally mandated 10-day preview period before Tuesday city council meetings, but the media vacuum has to be a happy side effect.) The final agreement is super-long, but looks in line with the maybe-not-quite-as-bad-as-the-original-but-maybe-just-as-bad-after-all reports that were leaked last month. Some highlights:

  • The city will issue $298.4 million in 36-year bonds, at an estimated 6.7% interest, for an annual bond payment of $21.9 million.
  • The Kings will pay $6.5 million a year rent, rising by 3% a year (except for years 2-5, when it will remain at $6.5 million before jumping up by 16% in year 6).
  • The rest of the bond payments will be made by 1) siphoning off any future rise in city parking revenue and redirecting it to the arena debt; 2) kicking in $5.9 million a year in city money currently going to pay off parking garage debt, starting in 2020; 3) kicking back $1.3 million a year (and rising over time) in property, sales, and utility taxes paid by the team that would otherwise go into the general fund; 4) $2 million a year in hotel-tax money over the first three years, before there’s any parking money to tap; and 5) if all else fails and the parking revenues don’t materialize … I have no idea what the backstop is, but the bond report is 335 freaking pages long, so maybe it’s hidden in there somewhere. Or maybe there is no last-ditch backup funding measure specified, which would help explain that crazy 6.7% interest rate.
  • The Kings will pay all arena repair and operations costs, and will keep all arena revenues.
  • The Kings owners promise not to relocate the team for the first 28 years of the 35-year term of the lease. After 2044, though, all bets are off. I also can’t find any indication of what the penalties would be if the Kings were to violate this clause, which seems like a pretty important omission.
  • The city agrees not to impose any ticket taxes or otherwise tax arena events, meaning no getting out of city debts by trying to take it out of the team’s pocket.
  • There’s a really involved clause (section 7.3(B), for those playing along at home) that under certain circumstances (way too many sections to list here, or even to easily reference across multiple PDFs) appears to allow the Kings owners to back out of this agreement and substitute one where they pay off all remaining debts but cut their rent to $1 a year, if they so choose.

In really really short: The city will spend $22 million a year on the arena, and the team will kick in about 50% of that over time via rent payments (the combination of rising payments and decreasing present value gets tricky, but the Kings’ rent should eventually end up covering close to half of the bond costs), with the city cobbling together whatever money it can to cover the rest. And the Kings get to keep all revenue from the arena, while paying operating costs.

It’s not the worst deal ever, but that still doesn’t make it a good one. Basically, the Sacramento city council will be voting next Tuesday on whether to throw about $150 million at an arena that it won’t get back (plus about $76 million in free parking spaces, billboards, and other goodies) in order to keep the Kings in town through 2044. At least we’ve established what this transaction is about.


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.

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.

Revised Kings arena deal would cut Sacramento’s losses to $173 million

The Sacramento Kings have announced that they’ve revised their arena deal with the city of Sacramento, and there are more new details than you can shake a stick at:

  • The total construction cost has gone up from $447 million to $477 million, thanks mostly to the increased costs of developing the area around the arena site.
  • The city’s share of the costs will actually go down slightly, from $258 million to $255 million (though with the value of free parking spaces, billboards, and other infrastructure, the actual public cost is probably more like $331 million).
  • Instead of the Kings paying $4.7 million in annual rent (mostly from ticket tax money), the team will now be committing to a rent starting at $6.5 million a year, and rising over time.

Sacramento assistant city manager John Dangberg calls this a “significant enhancement to our financing package,” and it certainly looks like a better deal for the city, even if it still won’t come close to repaying the $9 million a year (and rising over time) in future parking revenues that the city will be siphoning off towards arena cost, let alone the city’s $13-14 million a year total bond cost for the arena. (Figure on the high side of that estimate, since interest rates have gone up, and the city has acknowledged the Kings will be putting in too much money to allow for the use of tax-exempt bonds.)

There’s a new city council report that spells out the latest agreement — I haven’t made my way through all of it yet, but it does estimate the present value of the Kings’ future rent payments at $157,555,183, which if you take the total public cost as $331 million, would mean that Sacramento taxpayers would only be taking a $173 million bath on this project. That’s better than the old deal, and possibly better than a poke in the eye with a sharp stick, though I’d want to read all the fine print before saying for sure. Not to mention test the sharpness of the stick.

Sacramento group threatens to sue if Kings don’t build 24/7 public bathrooms

Thought the Sacramento Kings arena project was finally all over but the shouting, did you? Well, think again, people:

A coalition of labor, environmental and low-income housing advocates has a list of 25 terms they want agreed to before the city hands over a $255 million public subsidy.

Among the demands are giving hiring preference to Sacramento city residents and mitigating traffic impacts. There are also some unusual requirements, such as building public bathrooms that are open 24 hours a day, and donating $600,000 to local underserved arts groups…

The coalition says it could sue to stop the arena if their terms are not met.

This is the “community benefits agreement” model, which is swiftly turning from a promising way to demand public benefits from development projects to a way for local groups to shake down developers for a few specific goodies. No clue what grounds this coalition thinks it has for a lawsuit, since pretty much every possible lawsuit has already been filed, but at least this promises to drag out the always-hilarious Sacramento arena battle for a bit longer.

Kings eminent domain suit cleared, final arena approval possible in April

The Sacramento Kings eminent domain case is over, and it didn’t even take an out-of-court settlement to get resolved: A Sacramento Superior Court judge just up and ruled that the city can seize the former Macy’s building to use for the site of a new Kings arena, and that’s that.

This shouldn’t come as a surprise to anyone: Ever since the Kelo case, the courts have established that pretty much anything can count as a “public purpose” for which eminent domain can be used. (Maybe not organ smuggling. Maybe.) The courts will now figure out a fair purchase price for the property, but in the meantime arena preparations can proceed apace.

Next up: public hearings in April on the city’s environmental report and bond offering, with arena bonds to be sold shortly thereafter. According to the Sacramento Bee, the final agreement between the city and the Kings “will be released to the public 10 days before the City Council takes its final decision,” which is totally plenty of time to decide if it all makes sense. Or plenty of time to hold a couple of hearings and then rubber-stamp it, anyway. Definitely one of those.

Sacramento judge kills Kings arena petition drive dead, finally, no backsies

The nearly two-year-old petition drive to hold a public vote on the proposed Sacramento Kings arena plan finally met its maker yesterday, as Sacramento County Superior Court Judge Timothy Frawley ruled that the Sacramento city clerk was correct in having given it the boot:

In his written decision, Frawley said the proposed ordinance should be excluded from the ballot because it conflicts with the city’s charter and is “beyond the power of the voters to adopt.”

He added that the court found the “volume and magnitude of the proponents’ procedural errors undermined the integrity of the electoral process.”

The procedural errors bit is unsurprising and something that’s been covered in great detail; I’m a bit more surprised that Frawley went along with the city’s argument that voters can’t overrule city spending decisions without a charter revision vote first, but if STOP can’t be trusted to proofread their own petitions, I guess it’s possible they couldn’t read California law before launching this whole quest either.
Anyway, STOP has issued a brief press statement about the ruling, in which the group calls it “deplorable that our city’s leaders have put special interests ahead of the voters who elected them” and that they “make a mockery of democracy,” and calls on “Sacramento’s disenfranchised voters to express their outrage to their City Council and hold their representatives accountable” — but doesn’t threaten an appeal or anything, so it looks like this is indeed the end. Though of course there’s still the STOP lawsuit arguing that the city illegally hid the amount of subsidies it’s giving the Kings owners, which unless I missed something is still trundling along. But it sure sounds like it’s full speed ahead to see a groundbreaking soon — not that the city has figured out how it’s going to pay for this yet any better than its crazy-ass “divert parking revenues and make up for them with parking revenues” plan, but actually paying for it is the kind of thing you can figure out later, right?

Sacramento judge calls Kings petition errors “fatal flaw,” hints at ruling against public vote

Sacramento Superior Court Judge Timothy Frawley has put off until this week a final ruling on the petition campaign to force a public vote on the Kings arena project, but it doesn’t sound like he’s likely to rule in favor of the petitioners:

“These petitions are defective in a multitude of ways,” Frawley told a packed courtroom during a hearing that lasted about 90 minutes. While it could be argued that each individual error wasn’t enough to scrap the petitions, he said, “collectively there are so many errors” that they added up to a “fatal flaw.”

Frawley says he’ll allow the petitioners to submit new arguments on Tuesday, but if you see handwriting on the wall, you’re not alone. At least we may finally get an answer to the question of which side in this dispute is more farcically inept.

Meanwhile, with a respite of a couple of days, the Sacramento Bee’s Marcos Breton has penned a column arguing that voting on things is undemocratic, because journalists can play at this game, too.

Change of venue motion filed in Sacramento eminent domain suit! Feel the excitement!

The Sacramento Kings arena battle is deep into its terminal lawsuits phase now, though of course it’s yet to be determined who it will be terminal for. (That’s what the lawsuits are for. Duh!) In the latest twist, the owners of the former Macy’s store that the city wants to seize by eminent domain have filed a motion seeking a change of venue, saying “local bias” would make it impossible for them to get a fair trial in Sacramento.

There’s more detail, but let’s skip straight to this paragraph in the Sacramento Bee’s coverage of the story:

A separate filing spells out just how far apart the city and the property owners are on price. The owners said the property has been valued at $10 million for tax purposes. The city, by contrast, recently put $4.3 million into an escrow account – the amount it says the property is worth.

Seriously, guys? All this over a little more than $5 million in price? Admittedly, that’s real money to normal humans, but it’s a rounding error to a $447 million project. Like all eminent domain cases, this is likely to end with a settlement somewhere in the middle once each side sees on which side its legal bread is buttered.

Meanwhile, the two other Kings arena lawsuits — The One About The Public Ballot Petitions, and The One About The Subsidy Value — are forging on ahead, though with no new developments this week. Yet, anyway.