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.
Well yeah okay, but… you know… Civic pride! Quality of life!
Maybe the Kings will throw in some “I Spent $226 Million on a New Arena and All I Got Was This Lousy First-Round Playoff Exit” t-shirts.
Don’t you have to first make the playoffs to get those shirts?
How about, “I spend $226M, and all I got were these lousy NBA Draft Lottery tee-shirts!”?
The NBA should hold its lottery in Sacramento every year. Maybe they’d rent out a couple hundred hotel rooms if they did.
Thanks for reading those documents, by the way. I will also point out that on pages 9-10 of the document, it says all it has to do to raise more revenue is to increase parking-meter rates and change the hours. There’s a problem with that, and it’s one you already noticed:
https://www.fieldofschemes.com/2011/12/02/3231/sacramento-cant-actually-raise-200m-for-kings-arena-by-selling-parking-revenues/
To quote the Bee article referred to in your post:
“City officials are trying to determine how revenue from on-street meters could be used for an arena project. State law requires that meter money be used for traffic safety enhancements or to pay for parking facilities.”
Yes, that Bee article still exists. I found it.
It occurred to me I should include a link to the document that proposes using parking meter revenues to pay off the bonds.
http://portal.cityofsacramento.org/~/media/Files/Arena/May%2020%20Staff%20Reports/05132014%20Council%20Sup%20Agenda%202014-00354%20Lease%20Revenue%20Bonds.ashx
Pages 9-10.
Now, it occurs to me that parking rates naturally will rise over the 36 term of this agreement, and I’m obviously perfectly fine with that. However, they still won’t be able to use parking meter revenues to pay off arena debt.
Forgive my ignorance on how the city of Sacramento operates, but I’m assuming that the city still owns and operates its parking.
Maybe the loophole is to privatize it. Chicago sold 75-years worth of their parking operations for $1B (thanks Mayor Daley for that giant ‘F U’ of a parting gift). Anyway, if Sacramento no longer operates their meters and they just take a giant check into the general fund in return for letting someone else run what is now a quasi-private business, might that not get them around any such restrictions?
I’m asking honestly as I have no idea what the contractual obligations are w/r/t what’s in place now and what might happen with any such money.
Michael, maybe that would work, and maybe it would not work.
This isn’t part of what they’ll be voting on come May 20. It was part of the first proposal; it wasn’t part of the term sheets last year (that proposed to donate the parking assets to a non-profit); and it’s not part of the bond proposal this time (the new idea is revenue-anticipating bonds backed by the general fund).
To make an immense change like that now would set them back at least one year. I can’t see that happening.
Fair enough answer?
Didn’t Sacramento originally plan on selling off future parking revenues and using the proceeds to pay for the arena, before deciding it was too hard and switching to this plan? It’s been a long time and a lot of plan iterations and I don’t have time to check right now, but that’s how I remember it, anyway.
Of course, it’s a lot easier to project any revenue number you want when you’re the one collecting it. Selling the future revenues would have put a hard number on it right away, which might not have been $298.4 million.
*anticipation.
And, Neil, I’m getting an error every time I post now. Gateway error 504, I think.
I’ll also point out that one of the “set in stone” guidelines for any arena proposal was to “leave the general-fund whole.”
Frankly, they have missed that goal. This is what we meant, Neil, when we pointed out that not only must the arena plus the parking generate enough City revenue to pay off the bonds, it must do so while sending $9M/year in parking “profits” to the general-fund. This must generate $31M/year in City revenues to break-even.
That’s not going to happen. It’s virtually impossible. If the arena sells out 200 events/year, the City has to make $10/person in order for them to generate $31M. I do not see a way there. I’m betting it’s going to be more like $5/person, 150 events, average attendance of 15,000, which leaves them at least $15M/year short. This is going to bankrupt the City.
And when they hold the vote to bail this project out, I will be voting no. Why? Because we asked for a chance to vote, and were denied. I’ll vote in the future the way I’d have voted now.
In the Arena Financing, Escrow & Disbursement Agreement under “Allocation of Costs” it states the following. “The amount of the ArenaCo contribution is currently estimated at $253,869,900 including $32,049,480 for city parcels”. Wrong. The city is donating those parcels to ArenaCo so the contribution is originally from the city. In round numbers if the total project cost is $477M, then the city is contributing $255M (53%) with bond proceeds and land parcels and ArenaCo $222M (43%). However, the city is also borrowing (capitalized interest) for 4 years and adding that to the bond issuance costs totaling $300M which leads to a $22M/yr debt service at 6.7% interest rate. So, the reality is the city contribution is actually the total of $300M plus $32M in land value plus the value of the billboards and parking spaces given to Arenaco. So, it’s probably closer to $400M that the city is contributing with zero financial return.
Except the parking fund already generates $9m a year, so they only need $22m more. (Unless you think the parking revenues will crater with fewer spaces available, which is possible, but it won’t crater to zero.)
I agree with you that they’re almost certainly going to need to dip into the general fund for this, though they’ll probably structure it in a way that it looks like they’re not. Bankrupting the city seems unlikely, though, unless Sacramento is a lot closer to the brink than I thought.
The city is projecting yearly deficits of $40 million and upward within 5 years by considering ONLY current, legally enforceable obligations. The arena deal is not included in that number.
As for the history with the parking: The city originally wanted to sell all of its parking assets — on-street, off-street and enforcement — to a private entity in exchange for enough money to fund the arena. They then discovered that they could only include the off-street parking due to restrictions in State law and city codes. Without the on-street parking, the deal was not worth the amount they needed to generate so this scheme was dropped.
MikeM,
According to the deal, the only way the city can make money from attendance is through parking since it cannot tax tickets. With only 3,500 off-street parking spaces available, parking rates will have to go through the roof to pay for the bonds.
Neil, what you’re missing is that the revenue-anticipation bonds anticipate take money from 4 different areas to repay the bonds, and one of the four sources is parking. City revenues from parking WILL fall — this is a natural consequence of losing 50% of their off-street parking (and this, by the way, is going to create some *epic* parking shortages during the construction phase), but what little revenue they’re getting from the parking in the future will go towards paying the arena debt, which means that the $9M the general fund currently gets from parking WILL be gone.
City revenue from parking won’t drop to zero, but it will no longer enter the general fund. Got it?
Thus, to remain whole, the parking + arena must pay for the bonds AND return $9M/year to the general fund. I still come up with $31M.
Don’t fall for their accounting trick, Neil.
RA, rather than proposing parking rates go through the roof, what they’ll do is propose an “excuse me, we messed up our projections, so sorry!”-tax hike that we’ll get to vote on.
And I’ll vote no. If there’s a way to vote “Hell No”, I’ll vote “Hell No.”
MikeM,
I think it will be a combination of rate hikes and new taxes or fees. As for voting on it – I’m skeptical. They can add fees without a vote and I’d be willing to bet they take that route before admitting that they messed up. They have set the stage by declaring that there will be massive deficits when Measure U expires without the added burden of the bond payments.
One note about the parking: They originally said that about 1,000 spaces would be permanently destroyed by the arena construction leaving 1,700 available later. The Arena Design And Construction Agreement (page 12) states that the kings only need to guarantee that 850 spaces will survive the construction and they have 10 years to rebuild them. This amounts to the permanent removal of nearly 2,000 spaces from the downtown area.
I hope at this point that
1) The plan is to use parking meter revenues to make part of the bond payment, but
2) Given State law, they can’t do that.
I’ve been wondering if they are 100% aware of this limitation, and are willing to have their buddy and season-ticket holder Darrell Steinberg introduce emergency legislation to change that State law. I wouldn’t put it past them to try, but even with the current makeup of our legislature, I think they’d balk. If nothing else, Steinberg has a lot of baggage right now; people are distancing themselves from him.
I had to search hard to find this document, so you should all thank me.
http://sacramento.granicus.com/MetaViewer.php?view_id=22&clip_id=2856&meta_id=377142
Bottom of page 3:
“Under current California law, parking meter revenue and operations cannot be included
in the monetization. Meter revenues may only be expended on maintenance, safety
and security of the rights-of-way, and parking facilities or garages (including debt). Staff
is exploring the viability of using parking meter revenue to refinance the above
referenced tax-exempt debt on garages with new taxable debt, which is a permissible
use of the funds.”
That was the thought at the end of 2011; to move debt around to satisfy state laws. To my knowledge, this is not the current plan. It looks to me as though the plan is, “Try to not get caught.”
This turkey will assuredly pass, and I suspect that the funds needed to pay off the bonds will eventually come from pensions and retiree health care. Shirey (the City Manager) has been rattling on about the cost of these for some time. And it’s likely that the cuts won’t come from police and fire retirement costs, but other city workers, even though police and fire are a huge percentage of retiree costs.
You know, PIC (you’re gonna have to think that one over), since the Council previously identified state law as an issue, and now they’re ignoring it… I have to say, this looks wilful to me. I’m not sure how they can proceed with this proposal as-is. “Sure, let’s just ignore laws that we know actually exist.” That’s how it looks, and it almost seems to me they’re daring someone to do something about it, so the blame lies with that someone instead of the Council.
I think this is the language on page 10 of the document that you linked above that acknowledges that parking meter revenue can’t be used to pay off a GO bond.
“Many of these measures will require the policy support of the City Council in order to be implemented.”
I wouldn’t be surprised if this issue is addressed at the meeting next week, the city is aware of it and will have to address it, if only to assuage bond investors.
Also, I recommend you take a look at this hilariously inaccurate slideshow over on KCRA. It does get one thing right, it acknowledges the general fund is to be used for the backfill. IIRC the city long ago promised none of the arena funding would actually (that is, directly) come from the general fund, so much for that.
http://www.kcra.com/news/local-news/news-sacramento/sacramento-arena-deal-whos-paying-for-what/25947266
What’s all the complaining about? We: construction unions, the chamber of commerce, the NBA, Hoops fans, opportunistic politicos, lobbyists, consultants, lawyers, and those of us who hang on and rig the game for the 1% won. STOP and those who signed petitions lost.
I saw that joke on KCRA. At least someone in the mainstream media is acknowledging that the general fund is at risk in this scheme and that the city is planning to ignore state law.
Well, I actually wrote to John Dangberg, and got a response. He acknowledges that the language on page 10 needs to be changed, and it will be changed by May 15.
In my opinion, it needs more than a change. The language in there implies that they can simply change parking meter terms to raise more revenue. Actually, they CAN do that, IF there parking expenses increase. But if their parking expenses do not increase, they can’t.
They cannot raise on-street parking rates to match the rate of garages. Actually, I should say “cannot”; they cannot raise rates simply to raise more revenue to pay for whatever the hell they want to pay for, whether it’s schools, parks, arenas, libraries or a fleet of limousines. However, if their PARKING expenses increase, they CAN increase those rates.
So yeah, I got an answer, but I think it’s not 100% correct. This won’t be a simple clarification of what pages 9-10 mean.
(I hate there-their-they’re errors. Sorry. Stupid no-corrections-allowed rule. Or is that “no-corrections-aloud”?)
2,600 pages up for approval on Tuesday! Is this not the Godzilla of bureaucratic Tar Babies ever taken on by our city fathers and mothers???!! Whatever happened to taking care of, first, the 3 Ps? (Parks, potholes & police), then setting priorities for other spending and then, IF any money left over, consider half-baked, ego-driven, inferiority complexed ideas that waste taxpayers’ dollars? Stocktonization of Sacramento is on the horizon! But, alas, the council members who will vote on the 20th, plus key staffers (Fehr, Dangberg, et al) will be long gone and we city dwellers get stuck with a big sucking sound from a giant straw draining the Genl Fund over to the arena debt paymts. May be time to get a competitive mkt analysis on the house…
I loved Godzilla vs. Tar Baby. Especially the climactic briar patch scene.
Was G vs TB a book, movie, TV show, or a miniseries?
And was it as good as Sharknado?
Two articles were posted today showing how the city council plays fast and loose with the laws:
Sacramento is rewriting its billboard regulation to accomodate the deal it made: http://www.sacbee.com/2014/05/15/6406416/city-rewriting-billboard-law-for.html
Sacramento used Goldman Sachs as an advisor for the arena deal and now as the financer: http://www.newsreview.com/sacramento/vampire-squid-goes-cow/content?oid=13442398
Yeah, and they’re still not going to be able to use parking meter revenue to pay off arena bonds. It’s a State law.
Allow Karnak to make a prediction: “This will pass 7-2.”
Pretty sharp, aren’t I?
One small piece of news, though: The League of Women Voters is trying to change the venue for this meeting. Email the Council today to have this meeting moved to the Convention Center Theater.
I also see there were some new documents posted on 5/12/14 for the lawsuit.
At https://services.saccourt.ca.gov/PublicCaseAccess/Civil/SearchByCaseNumber,
search for case #34-2013-80001489. View them while they are still free, as it looks like they won’t be after 7/1/2014…
As for Tim’s comment, allow me to quickly summarize: The plaintiffs are asking for a delay in the Sacramento City Council vote, because 1) They have a case, and 2) The next hearing is scheduled for 3 days after the Council vote; since allowing the vote on that date would cause irreparable harm, the vote should be delayed.
I wouldn’t be surprised if the judge delays the vote.
That would be good, because the plaintiffs have done a great job laying out their case.
The city has already denied the change in venue for the meeting. They have already noticed the location and they need a venue with a live TV feed and therefore cannot move.
I have noticed that the agenda for Tuesday’s meeting has now been removed from the Council’s website.
Someone tell me what I’m missing.
http://sacramento.granicus.com/ViewPublisher.php?view_id=21
They may be preparing to post the “final” versions. The documents linked in Neil’s article are “preliminary” versions.
Yes, now the document is back, with updates.
So that means that the version that is required to be put out there 10 days before the meeting does not have to match the exact item under discussion at the meeting. That’s terrific. The bond document itself is around 1,000 pages long, and they plan to discuss it for 30 minutes.
I still see a 7-2 vote.
Note the language on page 9 of this document:
http://sacramento.granicus.com/MetaViewer.php?view_id=21&event_id=2468&meta_id=417375
Wouldn’t it be nice if they would tell us what “greatly exceeds” means?
That “greatly exceeds” is just the city talking out of both sides of their mouth again. In the document you linked where the city admits that it cannot use on-street parking revenue, look at page 76 (of the entire pdf). It shows the income, expenses, and net income from on-street parking, garages, and enforcement. According to that chart, the meters generated a net income of $2.25 million. Even if all of the $1.3 million administrative costs are charged against the meters, there is still a net profit.
An interesting note mentioned in today’s bee: The city will be distributing tickets for the council meeting. I wonder if they will give priority to city residents or if non-residents will be allowed to fill the chamber again.
As for the 10-day notice on documents, apparently the city council will have to waive that for the documents that changed or postpone the vote on that specific document.
I haven’t looked that closely, but are there any terms under which SBH can operate their garage under Downtown Plaza?
I was kind of thinking that if I was SBH and owned that lot, on non-event days and up until about 2 hours before events on event days, I’d work to have the most competitive parking rates in town. Fill that sucker up at $5/car. Watch as the City’s own lots lose even more business because the guys you just gave the lots to are now just killing you on prices.
The early-bird special at 1 Capitol Mall is in by 9:30, out after 4, $6. Make it so “The Lot at Jiffy Pop Arena” (like that?) is in by 10, out after 4 for $5. Why the heck not? The City just gave you a huge capital asset, so you might as well derive benefit from it.
Is there something in any contract to prevent that?
Here’s the latest fluff piece on the arena:
http://www.sacbee.com/2014/05/15/6409238/kings-will-spend-90-million-in.html
There is no accompanying article that says, “Over the next 36 years, the City will collect $226M less than they pay in bond payments for the arena.”
Oh, but I forgot, the arena will make the City $11B. Never mind.
Just took a look at the parking document and saw something I missed before:
Annual Fee. In consideration of ArenaCo’s use of the Parking Facilities pursuant to the terms of this Agreement, ArenaCo shall, during the Management Rights Term, pay to the City an annual fee equal to ten dollars ($10) (the “Annual Fee”). For any partial year during the Management Rights Term, the Annual Fee shall be prorated based upon the actual number of days in such partial year.
So, their not getting it for free. I’ll keep looking regarding parking fees.
Found the relevant section on page 11:
ArenaCo shall have the exclusive right to, and shall, operate
and manage, set fees for (and, except as set forth in Section 1.2), shall have the right to allocate, use, and distribute in its sole and absolute discretion all revenues with respect to) the Parking Facilities on a 24 hour per day, year round basis.
Section 1.2 has to do with how parking is handled during city events at the arena.
What they are getting for free are the naming rights to the arena which they estimate will be $6M/yr for 20 years. That pays for their annual arena lease of $6.5M. Ironic that the city supposedly owns the land and arena and yet gives away the naming rights.
I’m not surprised that the City Council is limiting the time for discussion. I’ve always felt that their goal is to be home and abed by 9:00 PM. If you’ve ever attended meetings for other City Councils, you would know that the meetings there can go on for hours. In San Francisco, the combined Bd of Supes/ City Council meetings have dinner breaks.
Remembering that one of the original terms of the non-binding term sheet had to do specifically with the city providing collateral for the re-issuance of the original 1997 ARCO Bonds. When this new, 183 seat larger, BB arena opens, the original, 1997 bonds are to be paid off / retired as part of the terms. Is there any mention in this 2600 page labyrinth of legalese (likely crafted to hide & deceive) if this is still a condition of responsibility that falls upon the city?
The bonds are mentioned in the Comprehensive Project Agreement. See document page 4, PDF page 9. Basically, the city is agreeing to refinance the debt and issue replacement bonds.
Thanks RA, that helps clarify “How” they PROPOSE to do it. Beyond that, the issue gets “kicked down the road” with regards to where the collateral for this new loan will come from…other than the “Kings Borrower”
“will borrow the proceeds of the replacement bonds from the City (the “Kings Borrower Loan”) under a loan agreement or similar agreement
(the “Loan Agreement”), which proceeds will be used exclusively for the purposes specified in Section 1.2(B)(2). The Kings Borrower will not be HoldCo, TeamCo, or Arena Co unless otherwise approved by the NBA and, in the case of ArenaCo, Leasehold Mortgagee.”
Given the terms of what must financially speaking, be ultimately covered by this new replacement bond, would it any be surprised that the amount could be close to the original bonds that were issued…and at a higher interest rate.
” The replacement bonds must be in an amount sufficient to pay (a) all principal, interest, and other amounts (including amounts needed to pay any interest‐rate‐swap termination payments, penalties, and costs) necessary to retire the outstanding 1997 Bonds and (b) to fund costs of issuance and a reserve fund for the replacement bonds.”
Rest assured, Goldman Sachs “pro bono” assistance will work it all out. Their revenue fangs seem to be permanently attached here.
While we can’t vote on the arena deal, unless there’s a referendum (which would kill the deal), we can do our best to make sure none of it’s supporters on the city council (or formerly in the state senate), ever win election to public office again. We can start this June by supporting Ali Cooper over Jay Shenirer for city council and Kevin MacCarty over Steve Cohn for state assembly.
If I remember correctly, in order to get the entire package passed, the City must change 2 laws regarding the placement of electronic signs. It seems to me that’s an opportunity to “catch them on a technicality”, and petition to undo that action on the part of the Council.
I also think there can be a petition against the issuance of the bonds.
There are ways to stop this still, but I think they’re longshots. Basically, I think this passes 7-2, and we run across our first problem in November when they try to sell the “permanent” bonds, and they find that the interest rates are far higher than anticipated, which completely ruins the funding model.
There will be an arena; it’s just going to throw an already delicately balanced budget off the cliff — and I bet the arena gets undeserved credit for making the landing softer (when the reality is, it will cause the problem).
How the City can eliminate over half its off-street parking and then claim that parking revenues will rise makes zero sense.
Won’t help to question that, though. The vote will be 7-2.
http://www.sacbee.com/2014/05/18/6413166/will-sacramento-take-the-gamble.html
Another fluff article in the bee regarding the parking situation. Not one word regarding the law that revenue from on-street parking cannot be used; http://www.sacbee.com/2014/05/19/6414161/higher-parking-rates-are-central.html
MikeM,
The change to the sign ordinance is on the agenda for tomorrow:
http://sacramento.granicus.com/MetaViewer.php?view_id=21&event_id=2468&meta_id=417373
I saw that article about the uncertain impact on parking, and it’s really sickening.
Yes, they’re willing to double and triple rates and to extend meter hours to pay for this. If I go to one of the dozen or so other popular venues downtown, I get to pay for the arena. If I work downtown, I get to pay for the arena.
And I’ve been convinced that it’s legal. What they did was figure out all the things parking meters can legally pay for, and asked: Are they paying for those things now? No. So if there’s $4M worth of stuff the meters can pay for, but are not, they can legally raise parking rates $4M, thus freeing up $4M from the general fund to pay for, I don’t know, things like arenas.
It’s slimy, and they’re going to get away with it.
Nice Deadspin article about KJ here:
http://deadspin.com/the-man-who-helped-bring-down-donald-sterling-is-an-ass-1576960521
H/T to, of all websites, sactownroyalty.
And now this:
http://www.sacbee.com/2014/05/19/6415558/advisory-panel-to-measure-community.html
What a joke.
Eye on Sacramento has posted their report:
http://eyeonsacramento.com/2014/05/eye-on-sacramento-issued-its-report-on-the-arena-project-and-financing-plan/