Why the Kings arena parking revenue fiasco is bad but not really that bad

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.

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Minnesota pays off Vikings stadium early, total taxpayer tab could still be $1.4B

The state of Minnesota has paid off its debt on the Vikings stadium 20 years early, thanks to money from electronic gambling coming in faster than expected:

With the support of Gov. Tim Walz, the Legislature agreed this year to pay off the debt early, mostly by using the cash accrued in the stadium reserve account. That fund developed a surplus when tax collections from pulltabs surged in recent years.

This sounds great on the surface, especially if you only read as far as headlines like “U.S. Bank Stadium paid off as of Monday.” Being in debt is bad, according to the prevailing wisdom, and if the tax revenue being used to pay off the stadium has come in more quickly than expected, then the stadium has worked out better than expected, right?

Let’s try looking at the story a slightly different way, and see how it pencils out:

  • After devoting $348 million toward the Vikings’ stadium in 2012, the state still owed $378 million thanks to the reverse magic of interest front-loaded amortization. It is now paying that off with a combination of $366 million from a stadium reserve fund, plus $12 million from the general fund.
  • That stadium reserve fund is flush because electronic pulltab gambling — basically gambling on iPads — has finally taken off after a slow start. The start was so slow, in fact, that the state had to approve using cigarette tax money and corporate tax money to fill in the gap in the early years, until pulltab revenues started coming in.
  • Spending $378 million now will save the state $226 million in future interest payments, which is good! But it also means it won’t have that $378 million to do something else with now, and those interest payments would have been spread out over the next 20 years, so it’s entirely possible that the state will end up worse off, or at least just breaking even, in present value terms.

What’s happened here, then, has nothing to do with the stadium, and everything to do with bookkeeping: Minnesota is taking advantage of a big budget surplus year to pay down some debts early, using tax money now to save tax money in the future. But it’s still all tax money: If the state had approved e-pulltabs and not a stadium, it could instead be using that $366 million reserve fund for something else. That the reserve fund is flush is a sign that e-pulltabs worked well — if you don’t account for the social costs of promoting more gambling, anyway — but says nothing about whether the stadium was a worthwhile expense.

But still, it’s worth at least one small cheer that Minnesota can stop budgeting money annually toward paying for the Vikings’ football stadium—

A report commissioned by the stadium’s oversight board, the Minnesota Sports Facilities Authority (MSFA), the building will need $280 million in maintenance and upgrades in the coming decade.

Welp. Assuming the MSFA ends up paying for the maintenance and upgrade costs, this will take the total public cost to around $1.4 billion. “At least Minnesotans are gambling enough that we can keep pouring tax money into the place” may be better than the alternative, but not by all that much.

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