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Wednesday, June 19, 2013
Why I Voted No on the Arena Deal
by Councilmember Kevin McCarty, published on March 7, 2012 at 5:10 PM
Storyline: Arena Deal
Dear District 6 Constituents and City of Sacramento Residents,
At the City Council meeting last night, I voted against a financial plan to build a new downtown sports area. I would like to share why.
Over the past few months, I have heard from hundreds of constituents and city residents who have called and emailed my office. I’ve talked with advocacy groups, business owners, Kings’ fans and interested parties in the arena deal. In addition, I’ve done my homework, researched other city arena deals and read through over 1,700 constituent surveys on this issue. I came to this conclusion carefully and thoughtfully.
In addition, I want folks to know that I am not an automatic "no vote" on public funding for an arena. My stance is that if we put public money into this project, it must be a good deal for the city and its residents. The deal put before us Tuesday night had too many risks and assumptions and not enough upside. It just isn’t a good enough deal for the City of Sacramento.
Here are the problems I see…
Problem 1: Pressing City Priorities
A Parking Authority idea is very intriguing and should be pursued regardless of whether the Arena deal goes forward to help produce millions in new monies annually for our City. If nothing else, this process helped us get here. However, it's really a policy choice where the new parking revenues should be allocated.
For me, it’s unconscionable to put all new parking monies toward the Arena with so many other pressing City needs. In my Council District 6, all three swimming pools are shut down. My community centers and libraries are open only a few days a week and staffed at skeleton levels.
All youth sports programs were eliminated last year citywide. Park maintenance and code enforcement staffs can’t provide adequate service levels, and more than 200 police and fire fighter jobs have disappeared in recent years.
And in less than 3 months, there will be more layoffs as we make another $25 million in budget cuts.
While I believe we must invest in the City’s future, we must also address the City’s current budget needs – unfortunately, the plan presented Tuesday night does NOT do that.
Problem 2: The Kings Loan
Under this plan, the current Kings $67 million loan will not be paid off – but refinanced. This loan would linger on the City’s books for another 30-plus years impacting the City’s credit-score and debt-ratio.
In addition, I am very leery about the absence of any real collateral on this refinanced loan. The existing loan the City has with the Kings has the arena and adjacent land as collateral. This refinanced 30-year loan would have neither. What bank would accept that deal?
This loan should be secured against real property of equal value, or with a significant financial interest, or with an NBA guarantee to protect the City against a default.
Problem No. 3: The $9 million General Fund backfill has too many assumptions, while the deal produces minimal upside
The plan backfills the City’s General Fund for core city services and magically adds up to $9 million. That dollar amount is not guaranteed and is based on assumptions. For example, I’m concerned about the $4 million annual projected income from ticket surcharges. What happens if we have another lockout or strike, or poor attendance year-after-year due to a badly performing team? Our neighbors in Stockton and Oakland lost big because of overly optimistic income projections for arena and stadium deals. Instead, why not insist that the Kings, AEG or the NBA guarantee the $4 million annual backfill?
More importantly, why are we just breaking even financially? Does anyone think AEG and the Kings only hope to break even? If it’s going to make money for them, then it should make money for the City and provide revenue for our priorities—especially since we are the ones putting up 65% of the investment.
These numbers are very revealing to me – AEG is investing $59 million and netting $5.7 million annually, while the City of Sacramento is investing $256 million and netting $1 million annually.
Problem No. 4: We’re going at it alone
We started with a regional effort last year, but today we stand alone. Sacramento would be going into this deal with very little help from other government entities in the region. Other small-market NBA cities have partnered with neighboring local governments to help make the deal work. West Sacramento and Yolo County have not been engaged as partners. They are fewer than 1,000 feet from the proposed arena site and have many businesses and retailers who would benefit from the arena’s presence. Officials in the City of Rancho Cordova have shown a willingness to listen to a partnership proposal, but they have not been engaged either. This arena will be a regional amenity; we cannot and should not be standing alone.
Problem No. 5: Our City contribution has doubled in 5 months
Five months ago, City staff and the Mayor’s “Think-Big” Committee stated that our City’s cost contribution for the arena would be 33%. That was a fair deal.
• A few months later, the City’s cost contribution increased to 50%.
• Last night, the City’s cost contribution increased further to 65%.
• That is an increase of nearly 100% since September.
As I said earlier, I am not an automatic “no vote” on public funding for an arena, but it has to be a better deal for our City and its residents. We deserve a bigger bang for our buck.
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And that Refi...will still be a 2nd position to the NBA ...and without brick, mortar, concrete or Terra firma collateral.
What would a loan shark charge for the interest rate on that?
What I am saying is that Natomas is a fine neighborhood (a nicer neighborhood to live in than most of the rest of the City of Sacramento proper, really) and it can recover without an arena. Big Box retail and industrial parks are GOOD as far as I am concerned.
Mindlessly parroting slogans like "diversity is strength" doesn't change any of that.
And whether or not a new arena draws new crowds to downtown, it won't stop the demise of at least some hotels and restaurants in the Natomas area, or reduce the perceived value of homes that were often advertised as being within walking distance of the arena. I understand your point that much of that will happen regardless of this decision, but many people are making it seem as though the positive impacts of a new arena are entirely new and different, and that there's no downside or transfer of wealth/benefits.
And not having the Kings and not bankrupting the City may be the better option - as was just pointed out, the article was about the deal and the level of risk involved for the City. The City is carrying all the risk here - for a longer period than arenas even tend to be viable.
Public polling shows very little support for public financing of an arena.
My perfect councilperson needs to work make me money so i can pay taxes that support my city services ... i appreciate Mr Mcartys statements, Yet i wish they were more constructive and that they had happened a year ago..
It takes a lot of guts to do what Mr. McCarty did this past Tuesday.
Thank you, Kevin. Well done!
The big question that remains for me: Is there any actual way to stop this process now? Yes, I know that our Council may look at the development plan and decide to halt it there. Theoretically, that is possible. But as a practical matter, would that happen?
The issue of the collateral on the current loan is a very big issue. Why we would get to 2015 and then have the Maloofs supply collateral for a new loan is beyond me. I don't believe the Maloofs can supply the collateral at this point in time. Worse yet, I don't think they'll be able to supply it in 2015, either.
So what happens to this deal and we get to 2015, it's time for the Maloofs to supply new collateral for a new loan... And they can't? We have this building, and we have a scofflaw anchor tenant who cannot live up to agreements made. What then?
I think I know what KJ will do: Supply collateral himself for the new loan. He'll try to sell more revenue bonds to cover that amount. He may even push a small tax increase to pay for it, with the logic that we can either watch the City go bankrupt, or we can have (for example) a .25 cent sales tax hike for 5 years to repay those bonds.
I hate to sound mean, but later on down the road, if anyone calls for a "small tax hike" to bail out this deal, I will vote against it.
Then the NBA will force the Maloofs to sell to somebody who can-- the NBA will never allow a team to default on a loan of that size and that public. Basically, if the Maloofs don't have the collateral it is a win win situation, unless you like or are the brothers Maloof
As for McCarty, he has no answers to the shrinking general fund and he will continue to vote for killing services as he has done in the past. His "no" vote isn't to be praised, it was weak and anemic. His supporters can praise him, but they may have to replace him because he's not leading them anywhere.
http://cityofsacramento.org/clerk/elections/candidateinformation.html
And supporting Q & R isn't hypocritical for her; she supported putting it on the ballot, and the voters said no. She continues to behave within the will of the voters.
The debate is - if parking is a reliable revenue stream, should we spend it on the arena? parks? pools? roads? libraries? police? firefighters?
The garages and lots are operated within an enterprise fund. Revenue generated by the lots and garages is limited to "the cost of operating, maintaining and paying off existing debt on the current inventory and providing for new lots and/or garages. It does not fund the general fund. Money that is periodically borrowed from the enterprise parking fund must be paid back inclusive of the interest that would have been accrued on the borrowed funds.
If it was a vote for statis I might buy the logic since we are a nice town comprised of nice neighborhoods (if you have a nice public job)...but it was a vote for decline.
As for all the other comments - I 100% agree that the city is taking on the RISK of the transaction - but they are not PAYING for 100% of the transaction. I'm not talking about the city/Maloofs/AEG split - I'm talking about the parking revenue. People that park in downtown now and in the future are not 100% city residents - these folks are from Sac County, Yolo, Elk Grove, Folsom, Roseville etc. The $200M in revenue the parking is projected to bring in comes from REGIONAL sources. The city is not going it alone in this - they are using the $$ spent by REGIONAL users to fund the arena. If McCarty wanted to bother to do a little research I'm sure the Kings would provide him a breakdown of their season ticket holders showing all the customers that don't live in the city of Sacramento. These are customers that will be driving in and parking in city lots in the future - essentially paying for the city's arena out of their own pockets.
God willing I'll still be going to Kings games for the next 30 years. If I average 20 games a year for that time, paying $10 a game in parking (current price) = over that period I'd be paying $6,000 (more likely far more) in parking to the City of Sacramento. I am not a city resident and I wouldn't consider my $6,000 city money. My $6K is regional money being contributed to a city project. I am one of millions of REGIONAL customers that will use this facility and as a result the facility will be paid for through a REGIONAL effort through this parking model.
Sure, an empty parking garage is, strictly speaking, a "public asset" -- but not one that's going to keep many swimming pools open. A parking garage filled by drivers paying $30 or $40 (I think the going rate just might go up a bit from the current $10) per vehicle -- you're talking about turning something just this side of blight into a veritable cash machine. BUT -- there has to be a reason to want to park there. An empty convention center, a bunch of eateries that close at 3PM, and the IMAX theater aren't gonna cut it.
Councilmen McKarty, I think you have very valid points. Yes, we have more pressing budget concerns, yes the region will benefit and should step up and help, yes this is a huge potential liability, etc. But let me make it nice and easy for you:
If you're not part of the solution, you're part of the problem.
I have seen nothing but criticism from you and Councilmen Sheedy on this, yet I do not see either of you presenting any form or inkling of alternative, instead just criticism and opposition.
How are you expecting West Sac to step up when you're advocating against this deal in the first place? How are yo7u showing uncertainty in the parking privatization i the first place but then retracing this argument with conflicting perspective that we should have privatized parking to cover our budget gaps in the first place? The problem with that mentality- is utilizing privatizing parking would be a band aid solution on larger problems (example: our entire region economy having been previously been based on real estate expansion which crashed and caused a domino effect.) While I myself am also skeptical about this parking deal, the sole reassurance I get is in the fact that the City is cashing this revenue source in to put it into something we hope will continue to generate revenue and business development and attraction.
Rather than frantically digging ourselves enough room to breathe in this hole we’re in, we are using a new tool we have not used yet and setting it aside to build us a potential ladder to help us out- it may not get us all the way out, but this could be 10 more steps to do so.
Is this ESC going to have the guaranteed effect on our area that we hope for? No. But we’ve already done what you’re doing before – pulled the plug on the idea immediately. Insanity is doing the same thing over and over and expecting different results, we’ve played it safe, we’ve dodged making any commitments to growth and economic development like this out of fear.
I hope that rather than resisting this at every step- you too jump in and vocalize your concerns in a productive manner on behalf of your constituents. I liked Councilmen Fong’s comments- he voted yes, but said hold the applause because he wants to keep the progress moving and not vote no with the risk of permanently burying this project but he too has concerns he wants to see addressed in the logistics.
Thus far you have not been part of any form of solution to any of these issues, not even the concerns you bring up, because you have been uncooperative and resistant altogether and isolated yourself – at least from what is presented in the public eye, I realize to everything in politics there is more to the story.
This is not meant to be a form of any disrespect towards you, I have definitely agreed and respected very much of your thoughts and decisions- however, I ask that in this scenario you turn these valid points that you based your opposition on into something productive. Look at how Councilmen Ashby planted her support for the ESC discussion but continued to bring her concerns for Natomas to the table- instead of fighting from the outside, she got on the inside and offered her support to bargain on behalf of her concerns for Natomas.
Whether or not one is for the ESC as being the choice of invested efforts to help Sacramento gain the momentum it needs to come out strong from the recession, we all do need to work collectively and support the City. This truly is a great City, and I hope to see you fighting on behalf of those of us in it to ensure that we gain the most from the ESC development and that we do not end up like Stockton for example, that we have eyes and ears like yours looking out for where they made wrong turns to help guide OUR city into the right direction.
Sincerely,
One of many Sacramentans!
Second, the council was briefed on the deal less than a week before the vote. It's hard to examine, research and propose solutions in that time frame. The item on the agenda was not up for revision, just for an up or down vote. So all the council could do was ask questions and vote.
On the issue of the loan: "This loan should be secured against real property of equal value, or with a significant financial interest, or with an NBA guarantee to protect the City against a default."
On the general fund backfill issue: "Instead, why not insist that the Kings, AEG or the NBA guarantee the $4 million annual backfill?"
And in closing he said: "As I said earlier, I am not an automatic “no vote” on public funding for an arena, but it has to be a better deal for our City and its residents. We deserve a bigger bang for our buck."
He did exactly the things you're criticizing him for not doing: He did offer alternative models, he is vocalizing his concerns, and as was pointed out, he wasn't given an opportunity to work on the deal or amend it.
Let's test that theory objectively...1 city resident at a time...1 resident equals 1 vote
I suggest your "Many" is a far cry from a majority of Sacramentans who actually live in this city.
@TonyShepperd (and JimMichael) – those solutions were not put together nor viable. If McCarty felt that strongly to fight for “us” than why did he not act and move on that? The City was on a short timeline that was beyond City control- it is what the Maloofs and NBA cornered the City into. No, I do not condone the fact that this had to be done in haste – but the Maloofs and NBA are not entirely to blame for this, the City and the rest of us knew our current sole Entertainment and Sports Complex was out of date. The Sports side of this gave the City the kick in the butt it needed to actually be proactive rather than complacent. McCarty cannot expect the deadline or timeline to be slowed down for him and his constituents just because he does not like it- if all of you opposing felt so strongly – then you should’ve done something about it and presented a better plan. But nobody stepped up. Not even McCarty, he simply voted no and voiced some concerns at the meeting but to the public eye it seems like that is ALL he did.
And finally to all of you and to “VoiceofReason” – yes, there are MANY Sacramentans who support the new complex and love Sacramento, just because you do not agree with it does not mean that statement is wrong. If you didn’t notice, there was quite a large grassroots movement that helped mobilize this entire process. And no it wasn’t a bunch of sports hooligans, there were businesses and organizations rallying together as well. If there are so many of you against this- where were you? Where was your grassroots movement? Where was your mobilization? Fickle comments and arguing over the term “many Sacramentans” on a reply thread to a news article just won’t cut it if you oppose it that badly…
I openly said in my original comment, this is certainly a risk and I am definitely worried- but I see this as a huge potential plus for the City. In this world, marketing and image is everything. This story of the ESC deal so far has created an incredible image of Sacramento, something that makes our City an attractive destination for people to want to live. Typically when people want to live here that means they want to work here, companies typically want to go to places where people want to live and work. People living and working here means they are spending and paying taxes here.
This is bigger than basketball, this is to put Sacramento on the NATIONAL map as a great place to live. Places like Austin, TX are comparable cities- also a state capitol, with a university that has a team that gets national recognition, and multiple large entertainment events that attracts millions to the city such as SXSW, Austin City Limits, and so forth. Without these Entertainment and Sports attractions, people around the nation and even around the world would not know about how great and beautiful Austin is.
I too am a concerned citizen, but I also feel that we need to see the City step up and start making actual commitments to bettering the City rather than just talking about it.
McCarty is part of the soluion. But, what problem needs a solution?
If you answer, how do we build a sports complex, I argue that your attitude is the problem that needs a solution. To point out inequities of a legislative proclamation (without a vote of the public I may add), should be applauded, not condemned as 'poo-pooing'.
Whats best for the city of Sacramento is the puzzle that needs a solution and this just may not include an expensive building and the leverage of our steady income stream. Haste before waste.
Secondly, to Kenneth - I feel your pain, I wish we weren't cornered to making this move now, but if we don't we lose a huge part of our regional marketing value- and every single sucessful product and City that has appeal out there has immense marketing and advertising value. My only disagreement is that it wasn't entirely the Maloofs fault we were forced to at this time (albeit I do have your same sentiment towards them!) The City and all of us saw this coming, a decision -if any- to finally commit to a long-term project like this would not happen until we absolutely had to, in good times or bad.
I don't get why folks are mad at McCarty for asking questions and withholding his support until we're clear on the financial impacts of the arena deal.
SF stadium turned area around. I hope to see the same downtown.
Austin has huge draw because of their many ENTERTAINMENT events - that city would not be on the map of places to go, and places to be, without the appeal they've created. -I feel Sacramento has this potential.
And I am with you- I don't get why they're mad for questioning and being concerned. I think what upset supporters of ESC was the fact that had the council had 5 "no" votes it would've stopped all potential ESC items dead in its tracks and the NBA and nation would have checked out immediately. Harsh, but true. I think every but the Mayor had their reserved "yes" votes because they do want to strike a balance between being progressive and getting something exciting like this going without losing sight of what is important.
Only time will tell how this will truly pan out.
In the mean time, Sacramento rallying together and showing optismism is what the City needs through everything to come out ahead.
"Build it and they will come" is a failed strategy. Creating safe, stable, diverse, and sustainable neighborhoods within the city will make it a desirable place to work and do business. It might even create a city that's economically successful enough to be able to blow public funds on a sports arena, but you have to put the horse in front of the cart.