As many, many of you wrote to point out, Friday’s news roundup neglected to cover the news out of Sacramento that the city is having to dip into its general fund to pay off construction bonds on the Kings arena that opened in 2016. In the words of the Sacramento Bee:
The city of Sacramento’s plans to use parking revenue to pay off $273 million in construction bonds for Golden 1 Center has developed funding cracks, forcing officials to use money from the city’s general fund, a pot of money that also pays for homelessness services, libraries and parks.
The problem: Too many empty spaces in Sacramento’s five garages, a continuing hangover from the COVID-19 pandemic. This has forced the city of Sacramento to divert from its $771 million general fund more than $5.7 million over the past two years to pay off the construction bonds.
That’s all sort of true as far as it goes. City officials’ justification for putting public money into a new Kings arena was, in part, that some of it would come from fees to park at city parking garages around the new downtown arena — not that much of it, mind you, but about a 10% slice, according to the city’s own numbers. (The Bee says 30%, but it looks like they’re including money diverted from debt payments on parking garages once those are paid off.) Once it turned out that people didn’t want to pay top dollar to park at city-owned garages for either Kings games or anything else downtown — though the Bee blames COVID, it also acknowledges that “even prior to the pandemic there existed a shortfall between the actual and the projected parking revenue” and says that more shortfalls are anticipated in future years — this meant covering the gap with money from the general fund.
This certainly sounds bad: Money that could be going to libraries and parks is being spent on a basketball arena owned by a near-billionaire! But, then, that was going to be the case regardless of how the parking revenues worked out. The parking shortfall has been clear at least since 2020, when the city reported it might have to cut city services to cover arena debt payments, after which I wrote here:
Sacramento is short on tax revenue to pay off bonds on its Kings arena and convention center, but honestly that’s just another way of saying that it spent a bunch of money that it didn’t need to and now the chickens are coming home to roost when “don’t worry, there’ll be plenty of tax money” isn’t working out so well. Would it be any better if the city had spent the same money on the arena and then received enough tax revenue to pay it off but couldn’t then use that money for other needed things?
The problem with spending money on sports projects doesn’t arise just when there isn’t enough tax revenue to pay off the anticipated costs; it’s that even if the tax money does flow as expected, that’s still money that could have been spent on something else. It’s why, for example, all the handwringing over falling-then-rising electronic pulltab gambling revenue in Minnesota that was supposed to go to pay for the new Vikings stadium was in the end pointless: Yes, it’s better for the government if it’s bringing in more revenue, but it would have been better with or without being saddled with a nine-figure stadium expense.
This is actually one of the most pernicious types of bad journalism: judging a public project based on whether the local government was accurate in projecting how quickly it could siphon off tax revenues to shovel in the team owner’s direction. We just went through it earlier last week, in fact, with the Washington Nationals stadium, which was deemed to be a success because it was getting paid off early, but still with the same amount of public money. It’s a bit like justifying an idiotic personal expense — Fyre Festival 2.0 tickets, scam swimming pool installation — on the grounds that “Well, at least I got a raise, so I can afford it”; sure, but you also could have afforded something you really needed with that money, if you hadn’t blown it on something you didn’t need. The same goes for Sacramento parking revenues: If the city hadn’t built an arena with them, it would still be trying to figure out how to cover an unexpected shortfall, but at least it wouldn’t be doing so while making $18.3 million a year in additional bond debt payments.
So the good news, such as it is, is that Sacramento isn’t having to divert any more money from public needs to the Kings arena than it was in the first place. The bad news is that its parking revenues are turning out to be lower than the rosy forecasts made to help justify the arena, so it has less money to spend on the arena or anything else. That’s still pretty bad, but if you’re just now getting angry about the public expense, you’re doing it wrong.
You can go to parkingreform.org and see 17% of downtown Sacramento is parking lots. Near the Golden 1 Center, 2 bedroom condos are on the market for over $500,000. It seems like the city should knock down some of those garages and build apartments, an investment that will increase property tax revenue.
Yeah, that’s a problem everywhere now, isn’t it? (Although $500k for two bedrooms is a steal in a lot of big cities).
As demand for office space – downtown or otherwise – remains soft, it would make sense to turn a lot of office and parking space into housing and improve the walking, cycling and public transit infrastructure around there.
But it’s not easy or cheap to turn an office building into apartments unless you want five or six apartments to all share the same communal bathrooms in the middle of the floor.
Parking is one of those “can’t live with it, can’t live without it” things. It wastes so much space, but we’ve designed most of our infrastructure and land-use around cars that we have to put somewhere.
I know there are so many bad arena deals out there that it makes it hard to keep track, but you’re missing one point: This deal was structured so that the first few years featured a lower payout for the first few years than it does for subsequent years.
These losses are going to accelerate, even if parking revenues rebound.
It’s very easy to find parking within 4 blocks of the arena for $15 or less. At the old arena, the owners charged $25 per event for parking, and kept all of it. I wonder what percentage of the now-typical $11 the City gets; maybe $2 per car? You can’t repay those bonds if your haul is $20,000 for 100 events a year, and they will never do better than that. I doubt they’re doing that now.
Also, the City’s claim they’ve raised $2b in higher property tax revenues… Yeah, show me the spreadsheet on that claim, please.
By “the first few years featured a lower payout for the first few years than it does for subsequent years” do you mean there are balloon payments down the road on the bonds? If so, can you provide a link? Everything I’ve seen says that the bond payments remain the same over the course of the term.
This is in a PDF, not sure how to link to it from here.
Meeting Date: 7/28/2015 – City Council Report https://sacramento.granicus.com/MetaViewer.php?view_id=22&clip_id=3660&meta_id=443721
https://sacramento.granicus.com/MetaViewer.php?view_id=22&clip_id=3660&meta_id=443721
Page 12
https://www.sportsbusinessjournal.com/Daily/Issues/2016/01/29/Facilities/NBA-Kings.aspx
This is more understandable.
Thanks! Yep, that’s indeed a steadily rising bond payment cost. One would hope that parking and other revenues would rise somewhat over time with inflation as well, but if they have shortfalls now, it’s only likely to get worse in the future.
Which, again, doesn’t make it a worse deal than if the revenues were there. But it is a worse deal than they were pretending it was going to be.
I really want to see how they arrived at $2b additional property tax revenue. They need to show their work.
Sorry about my foul up providing those links. Wish you had an edit feature!