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More arena questions being asked – some of which sound familiar



In an extensive article in the Sacramento News & Review (SN&R) this week, the following can be found: ““You’ve got to ask, ’Could we do something else with that $258 million?’ Politically, that’s not a very appealing question, and no one asks it,” says Propheter. He says dollar for dollar, the city would probably be better off making investments to promote small business.” Geoffrey Propheter is a George Washington University Ph.D. candidate with expertise in sports facility funding.

That same question was posed here in March – and it’s still a valid and reasonable question getting very little attention.

As has also been mentioned here before, $250,000,000 could provide 100 x $100,000 in small business development grants every year for 25 years. And that’s only accounting for the initial investment – if you allow for the total costs over the life of the loan (cited in various local articles as closer to $700,000,ooo) the number of such grants could be almost tripled. And people were excited when only one such grant was awarded recently as part of a business development competition in Downtown.

The other aspect of all of this that still gets very little press is that the loan payoff plan takes 35 years – for a facility that, if typical of similar facilities, will most likely need to be replaced or extensively renovated after 20 years. Generally, one doesn’t enter into loans that take longer to pay off than the life of what is being paid for. That’s why we have 30 year home mortgages but not 30 year car loans.

The SN&R article is thorough, pulling together several key questions and issues that have been asked around town – questions that nobody ever seems eager to answer.

 

 

 
  • sethsandronsky51456

    First, how many people have a point of reference on the flat number of $258 million in public parking-revenue bonds to fund Sacramento’s downtown sports/entertainment arena? Okay, $258 million represents 30.7 percent of the city’s approved amended 2103/14 fiscal year budget of $838.6 million: http://www.cityofsacramento.org/finance/budget/approved-budget-2013-14/Entire_Document_Approved_Budget.pdf

    Last, what credibility do the big credit rating agencies have to assign risk for these proposed bonds? The same Wall St. firms rated mortgage-backed securities as AAA before they blew up last decade. When real estate prices plunged, credit markets froze and crashed the economy. What came next were private-sector job losses, home foreclosures, business bankruptcies, and more recently state and local government spending cuts.

  • William Burg

    It looks like it will be closer to $300 million in loans, including backfill funds for the first few years while we’re still paying for the parking garages. One of the individuals involved with STOP, John Hyde, suggested the idea of a public university as another potential use for that amount of funds, and he referenced the article I wrote in response to your challenge: http://www.arena-debate.com/downtown-arena-subsidy-opportunity-costs/

    I don’t know Mr. Hyde, but having talked about the idea of a downtown Sacramento university in online forums for years, I like the idea. Having been at a University of Southern California presentation in mid-2012, where USC’s president mentioned their billion-dollar contribution to the economy of Los Angeles, I noticed that Sacramento’s city manager John Shirey was paying close attention. I considered the $250 million question a theoretical one, rather than challenging the wisdom of borrowing money from Goldman Sachs for public works projects, and proposed using those theoretical funds to build a streetcar network and related transit-oriented housing along the streetcar line, including adaptive reuse of vacant buildings: http://sacramentopress.com/2013/03/28/the-250-million-challenge-downtown-streetcar-corridor/

    After Hyde’s article was published, former Bee sportswriter/former Kevin Johnson aide/former Think Big Sacramento staff R.E. Graswich called the ideas “dumb and dumber”: http://graswich.com/info/2013/11/21/dumb-and-dumber/
    I considered responding to this column, but it was pretty obvious that he hadn’t read my article at all. Apparently when he heard I was a historian, he assumed that by streetcars and market-rate housing, I was referring to a quaint horse-drawn streetcar and cute brick row houses planted with petunias. Of course, if he read the article he might have noticed that one of the important uses for a streetcar would be to bring visitors to a downtown arena, an idea I supported in concept aside from the financing method.

    A response seemed redundant because a few days earlier, a group of young entrepreneurs purchased the historic Hall of Justice building and plan to convert it to market-rate housing: http://www.bizjournals.com/sacramento/news/2013/11/14/hall-of-justice-building-to-be-sold.html (No word on whether they plan on petunias.) The other part of the plan, funding the 800 K project, was supposed to be a companion piece to the 700 K project, was just as quickly cast aside–“Just ask any developer” was his advice regarding the practicality of housing downtown. Apparently he didn’t ask developers David Taylor or Domus Development, who were the proponents of this project, a mixed-use half-block that incorporated both new, modern architecture and restoration of the historic Bel-Vue apartment building: http://sacramentopress.com/2011/03/01/800-k-street-plan-at-preservation-commission/

    And a couple of weeks later, two members of the City Council, West Sacramento mayor Chris Cabaldon, and a group of other local dignitaries met at Township 9 to talk about the latest steps to build the first phase of a streetcar between West Sacramento and Midtown Sacramento. Because it would run through downtown Sacramento right past the Arena’s front door, they talked a lot about how useful it would be to carry people downtown. http://gettingaroundsac.wordpress.com/2013/12/14/streetcar-moves-forward/

    Of course, this plan would use modern low-floor streetcars, not the horse-drawn kind. They have their charms, but they do tend to leave behind piles of a smelly material I will refer to as “graswich.”

  • Tom Armstrong

    One of the problems in bringing the issue of financing an Arena to the public, is that we must make the distinction between current dollars and future dollars, otherwise — as happens here — what is going on gets lost in meaningless numbers.

    But first this: The $258 million only becomes real by selling the city’s future parking revenue and that only happens if we are going forward with building the arena. Thus the mental game of “What else could we do with the $258 million if we don’t build the arena” is nonsense. However we CAN think in terms of what can we do instead if we BOTH don’t sell the future parking revenue AND don’t build the arena. THAT would mean the city would get a much lesser amount over a long period of time. It’s a big heap of money, but not the fortunes that are getting knocked around when an Arena comes into play.

    I oppose the city helping out billionaires to build this arena, but it is an interesting choice; it likely can stimulated a lot of economic activity that will be greatly beneficial to the citizens in Sacramento and energize the downtown area, helping it to thrive far far into the future. But knowing what risks there are is impossibly hazy. The chance that the arena would “fail” are considerable — but unknowable — and, sure, we could end up speeding Sacramento to a Stockton-like bankruptcy situation.

    Whether $258 million and the bonus of economic activity it brings is equivalent to the $700 million [or $770 mllion that is also floating around] in future dollars will depend on how much the bond interest exceeds inflation. This question is another of the “NOBODY KNOWS AND NOBODY CAN KNOW EXPLICITLY” problems that vex us.

    For my money, you just don’t give hundreds of millions of dollars to billionaires. One thing for sure that we must do is not slip into another Gilded Age. We must make it possible for lower middle-class and poor people to have comfortable-enough lives such that they can find meaning and happiness in their existence. We must widen the path of opportunity for young people. We must observe that freaking basketball is really only a ridiculous game. Just as a great many fans of sports root for the San Francisco and Oakland major league football and baseball teams, we can happily root for the Warriors in basketball.

    • William Burg

      That $770 million figure is the estimated amount of total repayment of the loan over 35 years. Borrowing against projected future revenue can be useful if the revenue projections are accurate and based on reasonable assumptions. If not, the issue of how to repay the debt becomes the problem of a future mayor and council. Tony’s original idea was a thought experiment, based on the talking point of “nobody else has a plan.” I put forth the suggestions I did because residential reinvestment and streetcars are proven methods of promoting economic investment in downtown cores. The proposed method of payment for the streetcar line includes funds from SACOG, Measure A funds, real estate assessments along the streetcar line, and private investment like ads on cars and stops.

    • Tom Armstrong

      William, Right. But when you write “That $770 million figure is the estimated amount of total repayment of the loan over 35 years.” it doesn’t make a lick of sense unless we can try to figure out what that means in today’s dollars, and that is contingent on both the inflation rate during the course of 35 years and the interest paid on the bonds. Further, for the city to have a huge amount of bonds ‘out there’ cam impinge on whatever else the city might want to do in the next few decades.

      I certainly agree that the city can and should take certain kinds of risks for the purpose of stirring up future economic activity. Indeed, the city must do this because we are in competition with other cities and metropolises and should we do nothing things will deteriorate here leading to a downward spiral in the local economy.

      But nowadays big metropolises don’t have to bribe owners to bring in professional sports teams; but we do. Sacramento is — something like — the 24th biggest metropolis in the country. When you consider that New York, Chicago and Los Angeles are so big they rate multiple teams in their area for every major sport, it is hard to justify having a major-league team for our rather isolated metropolis. And with the economy being precarious and very very likely staying that way because computers and technology are making human labor less necessary, I would wager that building the arena is a mistake.

      We can take other risky ventures with what assets we have to set the course for a robust future. But we shouldn’t pretend that Sacramento rates being a Big City — it’s not that. Indeed we should celebrate our history as a modest-sized community and find projects that fit that scale.

    • Tony Sheppard

      It’s not a nonsense question at all: The City is essentially saying that we can afford to borrow this enormous amount of money in order to invest in the City, with a 35 year payoff plan. The fact that you tie this loan to the arena only further illustrates the problem – nobody is meaningfully discussing the idea of doing the same thing to finance anything else. Perhaps this really is the best way to spend this amount of money – but we’ll never know that if there aren’t alternatives on the table.

      If your friend had no cash and wanted to eat dinner and said he could buy Chinese food with is credit card and just became fixated on that idea, you might point out he could also buy Indian food, Italian food, Mexican food, etc. If he responded by saying that the credit card idea was only applicable to Chinese food, you’d probably question his logic as the same borrowed money could clearly buy many other things.

      Could there be other plans that don;t involve borrowing money, or as much money, of course. But those aren’t being discussed either. At least not by the people making the decision. It has been Arena: Yes/No for months now. This is being driven by people who want the Kings to stay, virtually regardless of cost (because they won’t be footing the bill anyway). If it was being driven by a genuine desire for development, without such a single focus, you’d be seeing multiple alternative propositions. The fact that so few have ever come forward is because the City discusses throwing $258 (or whichever number we choose to quote) at only one option. If it had been “Hey developers, we’ve got a quarter of a billion dollars of future taxpayer money we can throw at something, what ideas do you have and what do we get in return?” there might have been other choices.

      It also maxes out the City’s ability to pay the bill – we know this as we’ll be borrowing extra money just to make the initial payments without touching the principle. It’s like a mortgage with a second mortgage built in from the start, on top of other existing mortgages being paid for from the same pot of money.

      If your friend with the credit not only fixated on Chinese food but also bought enough to max out his credit card, with no plan in place for how to buy dinner tomorrow, you’d probably want to make sure somebody else was handling your catering needs.

  • Tom Armstrong

    Tony, I am not criticizing your article; I am highlighting the problem of coming to a meaningful conception of what building an arena will be. But your credit-card analogies are no help. It CAN be proper to get into debt with the payoff coming from the future. That’s done all the time, as you showed earlier with you example of taking on a mortgage.

    • Tony Sheppard

      Agreed – but buyers (typically) wouldn’t take on a mortgage for longer than they expected the house to remain standing and buyers (typically) look at more than one house.

  • Tom Armstrong

    How long the arena is useful isn’t the measure, here. It is totally one of if the payoff justifies the cost. Indeed, for this to work a big early-seeming payoff will have to come in advance of the arena becoming an old white elephant.

    And, Tony, there isn’t more than one house — in the sense that a decision on the Kings Arena has to be made by voters, if the powers that be don’t pre-empt it and go ahead and build, anyway, based on the city council’s approval.

    Of course, the problem for me is that voters, if they get to weigh in, will interpret this as one of whether or not you’re a Kings fan — not on any deep-into-the-weeds analysis of economics (or alternatives). And not on what is foremost in my mind: Turning around economic injustice. We shouldn’t be chasing billionaires in order to bribe them, in a contest with other municipalities, to bring economic benefits to our town.

    • cogmeyer

      What? Of course we should be chasing billionaires to bribe them to bring economic benefits to our town. After all it is the “billionaires” that have the capital that can drive substantive development. Sometimes the “billionaires” are major pension funds like CalPERS/CalSTERs, sometimes the are non-profit medical centers like Sutter or UC Davis, and sometimes they are private corporations or investors. Sometimes the billionaires could be basketball teams that want a new stadium.

      It is just simply populist, Occupy gobbly-gook nonsense to propose that those with access to capital should not be enticed to invest in a municipality.

      The great question being asked here isn’t whether we should be chasing “billionaires”, but rather are we chasing the right billionaires that have a high likelyhood of delivering a strong positive return on our city’s investment.

    • Tom Armstrong

      Cogmeyer, So you’re with Michelle Bachmann: Rich people are The Job Creators, so we should make them richer, still. And we should kiss the concrete they walk on.

      Chris Hansen will be happy to build an arena for the Kings with no cost to any government entity in Seattle. Likely — from wholly an economics standpoint — that would be best for everyone. Hansen (and his private partners) would be taking on the whole of the risk of owning and operating the team.

      I’m fully in favor of investment from pension funds and corporations and billionaires to build and establish businesses in our city/county. It is improper for any government to be so deeply in the mix that it is picking winners and losers in business dealings and putting our community at grave risk. Indeed, let CalPERS fork over a quarter-billion dollars to help the Kings — and NOT the city which has obligations to the WHOLE of the community in what it does with citizen’s tax moneys.

      Sacramento doesn’t need to be ever-expanding. We don’t have to yearn to be another Los Angeles. We can be like Austin, Texas or San Antonio [ignore for a second that S.A. has an NBA team] and be a beautiful peaceful place that doesn’t ache for urban sprawl. We can be a great liberal city with enough money on-hand to pay for police and fire-fighters.