Tag Cloud
Sunday, May 20, 2012
Think Big 100-day report: Immigrant investors and parking potential
by Melissa Corker, published on September 8, 2011 at 10:17 PM
Storyline: Politics
Loading images
A federal funding program allowing foreign investors to provide low-interest loans in return for green cards was one potential arena funding source highlighted in the long-awaited Think Big Sacramento Committee report, which was revealed to the public at a Sacramento Press Club luncheon Thursday.
The program, while not a solution in its own right, could buy time, allowing publicly owned land to increase in value for sale at a higher rate, according to officials. Both of those options are parts of the “menu of options” the Think Big Sacramento group was tasked with providing earlier this year.
More than 120 business leaders, a few Kings fans and most of Sacramento’s media gathered for the presentation of the 50-page report detailing financing options to build an entertainment and sports complex in Sacramento’s railyards.
Sacramento Mayor Kevin Johnson and many of the 72 members of the region-wide committee known as Think Big Sacramento, including co-chairs state Senate Pro Tem Darrell Steinberg of Sacramento and State Senator Ted Gaines of Roseville, were present to speak and to hear from arena finance expert Dan Barrett about various ways to build an arena in a challenging economy.
And Barrett had to do that within strict parameters set by the mayor to acknowledge that the public is in no mood for new, broad taxes.
The Nexus Report – so-named because each financing method on the menu has a direct connection to the new complex – identifies three main revenue categories: private investment, public participation and user fees.
Included among the many options discussed in the report are the sale of city property, the introduction of ticket surcharges and public-private partnerships for lease-back payments and private investment money.
None of that is new, though – Think Big has put out one report after another over the past four months describing those aspects of the project.
What was new Thursday was a proposed funding mechanism called EB5 – a federal program that allows foreign investors to provide low-interest loans in return for green cards.
The EB5 program has been around for 20 years, and it has been a successful means of getting up-front investment capital for public projects.
According to the U.S. Department of Citizenship and Immigration Services, the EB5 program is a pathway for an immigrant investor to “gain lawful permanent residence for themselves and their immediate family.”
The program requires a minimum capital investment of $500,000 to $1 million, and the projects funded must “create or preserve 10 full-time jobs for qualifying U.S. workers” within two years.
“EB5 is a mechanism, not a source,” Jackson said. “Its a loan – the money has to be paid back, so it doesn’t really solve the problem.”
But it does buy time.
If the market isn’t quite right to sell public property, EB5 funding can bridge the gap until actual revenues start to flow from what is now being called the Entertainment and Sports Complex, or ESC for short, according to Chris Lehane, Think Big executive director.
“It allows us the flexibility to move forward with the project,” Lehane said.
EB5 funding works something like a “bridge loan” in residential financing: a short-term, low-interest loan that makes money immediately available for initial construction.
“It isn’t a silver bullet,” said Barrett, founder of Barrett Sports Group, a sports management consulting firm. “Multiple revenue streams are still going to be required to make (a new arena) a reality.”
One of those “multiple streams” discussed in Thursday’s report comes from the income potential of parking opportunities in the downtown area.
“The city has a few options (on parking),” Jackson said, “and depending on which way (City Council) decides to go, we could get a good amount of money from it.”
Parking options under consideration include selling the city parking inventory to a private party, or leasing the city’s parking assets to a third party and collecting lease payments.
“A public-private partnership with parking would give us money up front,” Jackson said, “and we could maintain control long-term. That puts less pressure on (the city) having to get bonds to help pay for the (sports) complex.”
Jackson said that, although the specifics of parking revenue options still need to be hammered out, “it does have a lot of potential to help solve funding issues.”
The Think Big Sacramento initiative was launched in June and includes a group of 72 business, community and public leaders from the Sacramento region.
The report released Thursday is the result of the committee researching financing options and gathering support for the project under a self-imposed deadline of 100 days.
Think Big Sacramento has until March to firm up a plan for a new arena or the Sacramento Kings will have another opportunity to file a request with the NBA to relocate the team.
Think Big Sacramento committee members will make a formal presentation to the City Council Sept. 13, setting the stage for the next step toward building a new entertainment sports complex in Sacramento.
“This is an innovative approach to financing a project like this,” said Jeremiah Jackson, Think Big Sacramento project manager.
“Other cities just pass a sales tax and pay for an arena,” Jackson said, “That’s simple, but it doesn’t have a direct connection to the facility.”
If the last attempt to get taxpayers to foot the bill is any indication, it’s not what the public wants, either: In 2006, a quarter-cent sales tax to help pay for an arena was overwhelmingly voted down by Sacramento county voters.
Still, public enthusiasm has remained solidly in favor of a new sports and entertainment complex in Sacramento.
“Five months ago, it was all but certain the Kings would be moving to Anaheim,” Johnson said. “But, the community stepped up and said, ‘We aren’t going to sit on our hands and do nothing.’ ”
Melissa Corker is a Staff Reporter for The Sacramento Press. Follow her on Twitter @MelissaCorker.
Flag Article As:
Conversation Express your views,
debate, and be heard with those in your area closest
to the issue.
Leave a Comment
But it leaves big questions unanswered.
In a project this large, certainly a bond sale of some size must occur. Who will back those bonds? The report does suggest that the City will sell some general obligation bonds. The downside to that is that this leaves the general fund exposed. Is that a good idea?
Next, the options presented result in revenues between $275M and $400M. What this means is that if the Council accepts every single idea in the Nexus plan, it won't have enough money to cover the construction bond debt. In general, a bond issue will be paid back roughly double what the original issue was -- $100M in bonds results in a $200M payout to the bond-holders. So if this is financed entirely with bonds, this means that the payout to the bond-holders would be $800M. But $400M doesn't cover it.
Next, I really believe that some of the "fees" suggested (rental cars) will requre a vote. Can they put together a vote before March 1?
I'm disappointed with this report. It should have looked much more like a solid plan, and less like a "menu." I am very skeptical that the Council can put together a legal plan before Dec 31. But with only KJ and Rob Fong at today's luncheon, I wonder if the other Council members even care.
I give them about a 10% shot of getting this done. Which is fine by me, because I think this City has bigger things to worry about. Redirecting the $2M in hotel fees that currently go towards the convention center bonds to an arena? Um, what about the layoffs they just had?
I see city after city where arena deals have failed. If we do something like Nexus vaguely outlines, and we have revenue shortfalls, it could bankrupt the City. Really, is it worth it?
This would be more like a report I think we were expecting...to date....instead of the PR fluff pieces and lack of analysis received so far.
http://www.cityofsacramento.org/SED/SED.htm
read the footnotes....does not include land acquisition....infrastructure improvements...etc
And keep in mind this is a best-case scenario, assuming ALL of this menu of funding options are fully available, and the actual revenues received match the projected revenues (which have already been characterized as highly optimistic.) If revenue levels don't meet projections, that means the city, again, has to make up the difference!
This also assumes that the facility can break even. Now, considering that, according to the funding scheme as presented, things like tickets, food, merchandise, parking etc. will all be subject to service charges to pay against the construction debt, the arena won't be able to make as much money on operations as it would without those surcharges--making operations costs harder to cover (if the surcharge for a hot dog is $1 and you would have sold them for $5, you can either charge $6 and sell fewer hot dogs due to the higher price, or charge $5 and only make $4 on the sale.) Any guesses on who will have to pay the difference in operating costs if operation of the arena doesn't break even?
This also doesn't take into account the fact that many of the "user fees" suggested (items like transient occupancy tax, car rental tax, parking revenue, etc.) are already used by the city as income streams, and anything currently being paid for by those revenues would effectively be defunded--requiring the city to backfill from the general fund, or make more cuts to already bare-bones city services in order to divert those funds to debt service on the arena.
This is such an important issue that to call it a show-stopper wouldn't come close to estimating its importance. It renders the entire Nexus report utterly useless.
They needed to define who is selling the bonds, and how much bond interest would cost. This is a massive failure.
Reject any arena plan that relies on this funding mechanism.