Sacramento arena: A ‘Field of Schemes’

March 27, 2013

By Katy Grimes

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Sacramento officials have lost all ability to reason, and instead are letting emotions and delusions of grandeur drive their decision over a downtown sports arena.

Arenas are nothing more that fields of schemes, and the joke is on taxpayers. And Sacramento is hardly a bastion of economic splendor. Despite some of the highest unemployment in the country, escalating business closures, widespread home foreclosures and short sales, and declining tax revenue, arena talks are all the rage in Sacramento.

Judith Grant Long’s data on full public cost of stadiums and arenas is groundbreaking. “Where most ‘stadium cost’ charts just rely on self-reporting by teams, Harvard researcher Long has actually attempted to calculate the public and private costs of every major-league stadium and arena in North America, including hidden subsidies like free land, lease breaks, and tax exemptions,” Field of Schemes Neil deMause wrote.

It’s as if the Mayor is so enamored of the idea of driving away from the car dealership in a new Maserati, he’s forgotten he can’t afford one.

Public outcry silenced

At a Tuesday evening city council meeting, deliberately packed by rowdy, t-shirt-wearing supporters who jammed the hearing room early, the council voted to approve the arena term sheet. Because the Kings’ thugs jammed the meeting, anyone who showed up even before the meeting start time was not only precluded from joining the meeting, they could not even sign up to speak. I could not get close to the meeting, and had to watch via live video feed.

The council vote was once again taken without concern for the lasting long-term impacts the deal could and very well may have on the city taxpayers. But that’s historic with Sacramento’s city council.

What the council voted on last night wasn’t the actual financing plan — it was a nonbinding term sheet. The city council will still need to vote at some point to formally approve the arena funds.

Rose colored glasses

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Despite Mayor Kevin Johnson and City Manager John Shirey’s rosy and incontrovertible predictions of future economic growth from a new arena in downtown Sacramento, nearly every study done on cities with arenas shows not only minimal if any economic growth and job formation, but instead, arenas are usually is an economic drain on a city, resulting in higher taxes to subsidize and support the facility.

Gross financial understatements

According to Eye on Sacramento, a Sacramento-based public policy watchdog group, Sacramento’s “city staff has grossly understated the total public contribution to the arena. Instead of contributing $258 million, EOS estimates that city taxpayers will be contributing $334 million to the project, representing not 58 percent of the project cost, as claimed by staff, but 75 percent of the project’s cost (not counting subsidies provided by county government or future undetermined traffic infrastructure costs.)”

Sacramento’s previous arena deals have been totally discredited by the Sacramento Grand Jury  after voters refused to pass  Measures Q and R in 2006, which would have approved a quarter cent sales tax increase and directed the revenues to fund a new sports and entertainment facility.

“In an effort to obtain public financing, Sacramento City and County of Sacramento officials agreed to put the matter on the November 7, 2006, ballot as Measures Q & R” the Grand Jury wrote. “The ballot measures as written were a blatant attempt to avoid the provisions of Proposition 218 in that Measure R was listed as a general tax (requiring a majority vote) and Measure Q was for distribution of the monies from the tax. Combined, they would have represented a special tax requiring a two-thirds vote.”

Titled, “The Kings and City and County of Sacramento: Betrayal in the Kingdom?” the Grand Jury investigated the arena issue because they wanted to find out “if the City and County of Sacramento deceived their citizens regarding their dealings with the Kings.”

The answer was a resounding “yes.” Sacramento officials are still using these tactics.

The stinkin’ deal

The city is giving 3700 parking spaces at Downtown Plaza to the investors, which, according to EOS, have an estimated value of $57.8 million. But that’s not all. The city is also gifting to the investors of up to six sites for up to six digital billboards, which have a net present rental value of over $18 million.

The local mainstream media is so enamored of the idea of a big, shiny new arena they have ignored that the city’s financing plan is riddled with serious flaws, and grossly exposes the city’s general fund to potential liability.

EOS points out the deal “ties up the city’s TOT revenues, involves very high interest rates, is of a type (garage bonds) that are causing problems in other cities and involves the payment of over $80 million of additional interest in order to secure $24 million in lower payments in the first eight years of the bonds – a horrible deal for taxpayers.”

Perhaps equally disturbing is Mayor Johnson’s gross statement of the creation of 4,000 jobs due to the arena redevelopment project. This number grows with each press conference.

Trumping up demand

Without demand, the arena project will not bring more jobs to our city that are not already here. The only new jobs that may be created will be more union jobs to build the structure, which will be obsolete and out-of-date before any of the loans are paid off, or before any of the interest is paid back to the city by the Kings’ former owners, Joe and Gavin Maloof.

In 1997 the city loaned the Kings’ owners $78.5 million. The loan has not be repaid.

Sacramento is a Project Labor Agreement lovin’ city and county, and uses these agreements for everything built inside the city. Needless to say, all public projects in Sacramento cost up to five times as much as they should cost. The $1 billion terminal at the Sacramento airport is evidence of these inflated construction costs.

One of the last weird arena schemes would have relocated the state fairgrounds to Arco Arena in Natomas, and  developed the 350-acre Cal Expo site to help finance a new arena downtown. It would have turned ownership and operation of the state fairgrounds and the annual state fair over to a private company, VisionMaker Worldwide.  VisionMaker would have returned ownership of the facilities to the state after 30 years.

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EOS also found the city has failed to assess the opportunity costs of doing this deal – the future projects that it will be unable to do because of the use of its parking assets to securitize the arena bonds.

 The slums of Sacto

Sacramento is located on two rivers, neither of which has ever been developed. In the downtown, K Street was turned into a pedestrian mall in the 1960′s. It was a failure, but only made worse by the city, which spent more than $250 million over the years in highly suspect redevelopment projects, annexing buildings and property along the street, turning it into a giant slum. As the biggest slumlord on K street, and in downtown, the city has made a mess, from which an arena will not perform a rescue.

These are real issues that real leaders would tackle. Sacramento could be a much more interesting city, had any of the city councils allowed development along the rivers. And the downtown business district might have been a thriving area, had the Sacramento redevelopment agency not robbed the taxpayers of several hundred million dollars over the decades.

Sacramento is still operating with a massive deficit. I’ve been told by city insiders that the city’s deficit is as high as $60 million. So let’s build an arena.

Building a sports arena is nouveau riche, and a short-term gain for a very few.

CEQA exemptions?

In 2011, Gov. Jerry Brown signed two CEQA exemption bills into law:  SB 292, “California Environmental Quality Act: administrative and judicial review procedures,” for the City of Los Angeles – stadium, and AB 900: “Jobs and Economic Improvement Through Environmental Leadership Act of 2011.”

In a thoroughly dirty legislative deal, and with one swipe of the governor’s pen, the AEG arena project in Los Angeles was exempted from the California Environmental Quality Act.

While Sacramento’s arena deal is subject to litigation risks under CEQA, expect to see one of Sacramento’s legislators, Sen. Darrell Steinberg or Assemblyman Roger Dickinson, to propose legislation also exempting this arena project from the CEQA laws.

And the bottom line since this latest deal was announced by the Mayor on his Twitter feed Saturday evening, the public has not had sufficient time to even review the proposed deal or the city’s sketchy financing plan. And, since so many members of the public were deliberately prevented from speaking at the city council meeting last evening, it is safe to say that Mayor Johnson and his cronies are clearly trying to shove this deal down the throats of Sacramento’s taxpayers.

8 comments

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  1. Hondo
    Hondo 28 March, 2013, 09:35

    The NBA will look at the economic viability of Seattle and Sac town and Sac town will be pushed aside. Seattle is a much bigger city and metropolitan area and their economy is in much better shape. The NBA will look at what the voters may do in an election and that may seal the deal.
    I Seattle, Paul Allen (the Microsoft multi-billionaire) who owns the Seahawks, can easily underwrite any new stadium there with a smaller amount expected form the taxopayers.
    But it is unlikely that Seattle, let alone Sac town, will ever be able to attract the biggest names in the sport, which means the chance of either town getting an NBA championship is the same as me making the roster on any of their teams. Hey, I have a vertical leap of nearly 6 inches (but it looks more like 8 to me).
    Hondo…..

    Reply this comment
  2. Hondo
    Hondo 28 March, 2013, 09:37

    Sorry about the typos. And I hope someone got that joke at the end.
    Hondo……

    Reply this comment
  3. stevefromsacto
    stevefromsacto 28 March, 2013, 12:39

    If you look at the Sacramento proposal closely, it offers a potential of more than $1 billion in needed redevelopment and revitalization of its downtown area, at a cost of around $250 million, without raising taxes. For those of you who are math challenged, that is a potential of $4 earned for every $1 spent, or a return on investment of 400 percent.

    It is ironic that you anti-government zealots now find yourself in bed with those who oppose the redevelopment plan because they think government should be spending more on things like education, health and welfare instead. Strange bedfellows, indeed.

    Reply this comment
    • CalWatchdog
      CalWatchdog Author 28 March, 2013, 13:25

      Steve: Your hero, Gov. Jerry Brown, ended redevelopment in 2011 in part because it’s always a scam to take property from real people, usually homes and small-business owners in “blighted areas,” and give it to rich developers. The previous owners are recompensed at a rate much less than the property is worth. Now you want to bring redevelopment back! Sacramento also is notorious for how redevelopment damaged its downtown area. You just want more of the disease.

      Oh, and I got an “A” in every math class I ever took.

      — John Seiler

      Reply this comment
  4. Richard Rider
    Richard Rider 28 March, 2013, 16:33

    Good luck getting any NBA stars to move to Sacramento in the future. No young guy wants to live there (ZERO glamour), and now the sky-high 13.3% CA income tax is a HUGE deterrent. In stark contrast, Seattle has ZERO state income tax.

    The other big change is that, for a star making $2 million or more, the new 2013 federal law disallows 80% of the deductibility of any state income tax over 2 million income (and phases in before that). That change — coupled with the 29% Prop 30 tax rate increase — results in the 2011 NET CA state income tax rate rising an astonishing 83.6% NET in 2013.

    Indeed, settle in for a stately decline in the quality of all CA sports teams — but especially in Oakland, Sacramento and San Diego.

    Reply this comment
  5. Hondo
    Hondo 28 March, 2013, 17:03

    stevefromsacto:
    Stop hogging the pillow.
    Yes I agree with you partially. The sports industrial complex is out of control and takes tax money from needed govt spending such as education, fixing pot holes, buying fire trucks, ect. Sports stadiums rarely pay their way and mostly they work in the biggest of cities such as LA and NY. In smaller markets they rarely turn a profit. It is simply corporate welfare.
    Hondo….

    Reply this comment
  6. CalWatchdog
    CalWatchdog Author 28 March, 2013, 20:38

    Great point Richard. With pro golfer Phil Mickelson coming out recently about the high taxation in California, many sports stars will undoubtedly look at this.

    California’s anti-business and anti-work policies are taking root.

    Katy

    Reply this comment

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