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July 02, 2012

Would Seattle turn a profit on Hansen's arena deal or what?

The question of whether Chris Hansen's proposed $490 million Seattle arena project would meet the requirements of Initiative 91 returned to public prominence on Friday, as five city councilmembers raised questions about how the plan jibes with the voter-approved law's requirement that the city get a return on its investment at least equal to what it would get from treasury bonds:

"If you believe that I-91 requires a fair return on the public investment, this proposal does not do that," said Councilmember Tim Burgess, chair of the Government Performance and Finance Committee, after the hearing to review the 2006 initiative with city budget staff.
Councilmember Nick Licata agreed. "There appears to be a real gap in their argument that we're getting a return on our investment."

The dispute is over whether Hansen's payments to the city — which would come part in the form of rent payments, part via kicked-back "arena-related" tax revenues — would be enough to produce at least a 2.75% profit for the city, after financing costs. One anti-arena site says no, putting it in graph form:

Councilmember Mike O'Brien disagrees, saying arena payments would equal 5.5% a year, though it's not clear whether he's including the city's financing costs on the negative side of the ledger. (I'll try to get more detailed info on this later today.) O'Brien does worry about the risk of counting on payments from a private entity rather than from the U.S. government, but as The Stranger notes, the payment part of the lease is about as ironclad as you can possibly imagine — though the paper also admits that "there are a lot of legitimate angles from which to criticize the arena proposal. Its impact on the nearby freight terminals might just not be worth it, or economic substitution and lost opportunity for tax revenue on money spent at the arena might present too big a hit to city coffers."

There's been no response so far from the pro-arena guys who've been incessantly advertising at the top of this page. I'm willing to bet someone will spell out the pro-Hansen's-deal-meets-I-91 arguments in comments, though.

COMMENTS

What enforcement mechanisms are in place to ensure this rate of return? If those mechanisms aren't in place or aren't strong enough, it seems to me that I-91 has never been more than a strong suggestion.

I haven't changed my mind on this point: As soon as Hansen and Ballmer publicly announce that they've reached an agreement to buy a team, the council members who are balking now won't be balking any more.

Posted by MikeM on July 2, 2012 04:29 PM

The league would not approve a sale until the arena is built and I don't think they would buy a team until they have the deal approved.

The League would lose leverage and so would the Hansen group...at least that is my take.

Posted by JB on July 2, 2012 09:20 PM

It seems to me, JB, that you build these deals on contingencies. Ballmer and Hansen would be crazy to build an arena with no commitment from a team, and they'd be equally crazy to buy a team with no set arena plan. So you go half-way; proceed with the team part if the arena negotiation reaches some point.

Which came first, the chicken or the egg? Well, in this case, a little of each, with contingencies.

But as soon as that council hears that a team will sign on if the arena is approved under a certain set of conditions, people will bend over to make it work. It's just that, over the last 20 years or so, cities have bent way too far backwards to make it work. Too much egg and not enough chicken (or is it the other way around?).

Posted by MikeM on July 3, 2012 04:16 PM

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