Sacramento subsidy could win Kings

April 11, 2013

By Katy Grimes

Sleep_Train_Arena_interior

Sacramento could become known as the little government town that could. As Sacramento officials fight to prevent the Sacramento Kings basketball team from being lost to Seattle, the public subsidy the officials are offering is looking ridiculous — and unsustainable.

With its historical, abiding inferiority complex, Sacramento has long suffered under the absurdity and indiscretion of city officials who claim an economic rebirth will only occur if hundreds of millions of taxpayer dollars are spent on a new sports arena. And they do this with blatant disregard of the voters’ unwillingness to spend public money on an arena or professional sports team.

If the competition to keep or get the Kings is about which city has the best public subsidies to curry favor with the NBA, Sacramento wins hands down over Seattle.

But as more details are bounced around in the Sacramento arena deal, it is becoming apparent Sacramento should lose in overtime.

Needling Sacramento

A story in the Seattle Times Tuesday confirmed just how far Sacramento will go to make the deal. “Take Sacramento’s $447 million arena plan. It was unveiled to the public and then passed by their City Council only three days later,” Times columnist Danny Westneat wrote.

“Can you imagine the reaction from the Seattle process factory if our mayor put forth a half-billion-dollar public-private partnership and wanted it approved in just three days?”

Westneat added, “But beyond the haste here’s what is in Sacramento’s arena plan. It’s 60 to 75 percent public subsidies, depending on who’s counting.”

Bowing to the masters

Senate President Pro Tem Darrell Steinberg, D-Sacramento, recently returned from a trip to New York City with Sacramento Mayor Kevin Johnson. They weren’t on a political junket, but went to the Big Apple to convince the National Basketball Association to allow Sacramento to keep the Kings.

Seattle, a city of 620,000, has 3.5 million in its metro area. Sacramento, on the other hand, has 470,000 city residents, with 2.5 million in the metro area.

The little government city that could…

Instead of getting down to the business of repairing Sacramento’s economy, along with its deep potholes, failing sewer system and diminished city services, Mayor Johnson, together with a team of city council members, has kept his eye on the basketball — at the expense of city business.

Sacramento City Councilman Kevin McCarty has been a vocal opponent of the arena deals, primarily because of what he says is an unsustainable public contribution. I called and emailed him to discuss his opposition, but he did not call back.

In a Sacramento Bee story, McCarty called the subsidy “overly generous” and warned it could “bring the city enormous misfortune if arena revenue doesn’t pan out as projected…. The risk outweighs the rewards.”

Show me the money

The Sacramento arena would not be getting so much attention if the arena deal was a purely private sector arrangement. In fact, private funding probably would bring it wide support in the region.

City of Sacramento officials claim the deal calls for $258 million of public taxpayer subsidy. A private investment group will contribute $189 million to the arena construction, and would be responsible for all capital improvements.

According to public policy watchdog group Eye on Sacramento, the deal actually calls for an additional $75 million of public subsidies that have not been counted by the city, or included in the city’s numbers.

Add this additional $75 million to the subsidy pot, along with Sacramento County’s public contribution, and the subsidy amounts not to a 53 percent public subsidy as city officials keep repeating, but is closer to a 75 percent public subsidy of a future sports arena.

Additionally, according to Powell, city officials would also receive control of a luxury suite in the new arena, and preferential VIP parking, “a perk that would cost taxpayers a total of $8 million, according to the findings of a noted sports facility economist.”

This is what’s known as padding a public subsidy, and creating a perk for city government staff.

Nuts and bolts, and luxury suites

To accomplish the development of the new arena and subsidy structure, the city plans to form a nonprofit corporation, which would own the parking lots and buildings. The nonprofit would issue bonds to finance the arena.

According to the city, the bonds would be repaid through city hotel taxes and other taxes and fees.

In a recent story, the Sacramento Business Journal explained where the rest of the city’s contribution would come from:

* Sacramento’s parking infrastructure fund: $1.5 million

* A rebate on sales taxes generated by the arena construction: $1 million

* Funds set aside for downtown development from the city’s share of proceeds from sale of the Sheraton Grand Sacramento: $5 million.

* Land transfers to the arena investors: $38 million. This would include 100 acres the city owns near the current arena in the city’s Natomas area.

But when the numbers are crunched, it appears Sacramento could have to dip into the general fund to make the payments on the bonds.

Hiding the numbers

Powell said that, as the deal was bounced by Sacramento officials only days before the city council vote, the city has been disguising the real numbers.  Parking revenues and the 12 percent hotel tax revenues are just not going to be enough to service this debt. That means the recently passed Measure U sales tax money likely will be tapped to service the arena bonds.

Measure U was sold to voters as a “temporary” half-cent sales tax proposed “to restore and protect City services,” according to the City of Sacramento. The sales tax measure was passed by voters, 64-36, in November 2012.

History repeats itself

After Sacramento Voters soundly defeated 2006 ballot Measures Q and R, which would have raised sales taxes to fund a sports arena, then-Sacramento County Supervisor Roger Dickinson continued to push like crazy to build an arena.

A back room deal was put together by Dickinson (now in 2013 a Democratic member of the state Assembly) and Steinberg. They hurried Measures Q and R onto the ballot, leaving voters only a few days to vote on the measures, which were missing crucial information in ballot explanations used by voters. Dickinson continued withholding the information until two courts overruled him. Steinberg and Dickinson also tried to get the measures passed by 50 percent simple majority vote instead of the two-thirds vote required for tax measures.

Voters killed the measures anyway.

Westneat is apparently floored at the audacity of Sacramento city officials. “But what’s most revealing is the public non-reaction in Sacramento,” he wrote. “One group, called Eye on Sacramento, called out the luxury suite as a sort of bribe — ‘one of the dirty little details of the arena deal.’ It got all of five paragraphs in the local paper and no obvious public blowback.”

“This is no normal business,” Westneat said. “It’s a cartel. And one thing we know from bitter experience is the NBA cartel likes its host cities a little desperate.”

9 comments

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  1. Steve Mehlman
    Steve Mehlman 11 April, 2013, 08:24

    “The little government town that could.”

    The secret’s out: The only reason Katy is rooting against Sacramento is because it is the seat of state government. If this were happening in any other community in any other state…like it is happening in Seattle as we speak…she would have no problem with it, even though the local government got involved to help get the deal done.

    As I’ve said before, the bottom line of this proposed deal is that Sacramento will get a badly needed revitalization of downtown at an estimated value of more than $1 billion in return for an investment of around $250 million, without a tax increase. That’s a return of 400 percent on investment, which should be enough to make committed capitalists salivate.

    Reply this comment
  2. Hondo
    Hondo 11 April, 2013, 10:14

    The reason Katy opposes the sports industrial complex mindset that led to Penn st and Rutgers is that this takes money away from schools and health care and fixing potholes and govt obligations in general, the very things that the dems scream about not giving enough money too. Katy lives in Sac town and weaves among the pothole everyday. That is what govt is for. Pot holes. Not transfering taxpayre dollars to the billionaire owners and millionaire players pockets.
    Independent studies show that these big public financed arenas only pay for themselves in the biggest of markets, NY, LA, Miami, ect. The taxpayers take up the slack in the smaller markets.
    But what none of these studies show is that the best players avoid ‘non black’, small market areas. La Bron will never go to Portland or Seattle or Denver or Sac town, or the Miniapple. Sac town and Seattle will NEVER have a championship team in basketball. Ever. The Kobie’s and the La Brons and the Shaq’s and the Carmelo’s only go to the biggest of venues. They get far more off court advertizement dollars there, compared to small market Portlands and Sac town.
    Once the fans see that their cities are relegated to being ‘farm’ teams for the bigger market bound players, then fan support goes way down. A Florida team in baseball is begging people to show up to the opening day game. They have no chance against the big market Yankees and the fans know it. They understand that their small market tickets to the game will never get a championship, it only lines the pockets of the unappreciative millionaire players. They have said many times, they get paid to play, not to win.
    The bottom line is that unless there is a privately financed stadium, both Seattle and Sac town will loooose money in the long and short run.
    Hondo…..

    Reply this comment
  3. Dave Boz
    Dave Boz 11 April, 2013, 12:59

    What a nonsensical inversion of the idea of ‘return on investment’ Steve Mehlman puts forth. If you give me a quarter-million dollar house, and in return I agree to build three more houses and sell them, how have you gotten any return on your investment?

    Theoretically, Sacramento will realize some tax revenue from the additional investments of the developers – but only from the taxes on business activity that takes place. There is no projection that shows Sacramento generating in tax revenues even a significant fraction of its ‘investment’ in the arena. It is a giveaway, for the purpose of subsidizing the developers, and the basketball team owners and players.

    This is why Gov. Brown wisely killed the redevelopment agencies. They are nothing but a vehicle for transferring tax money to private interests.

    There is still no reputable economic study – none – that shows subsidies of sports arenas benefit the public. This palace will be no different.

    Reply this comment
  4. jman
    jman 13 April, 2013, 14:14

    Consider these two sales propositions:

    “Come to Sacramento, you know, home to the great roads, fantastic sewer systems and wonderful city services”

    or

    “Come to Sacramento, you know, home to the world famous Sacramento Kings”

    Now consider, which will draw the next younger generation of tax payers as opposed to the retirees who need their city services and road construction and city services paid for by the working class?

    Reply this comment
  5. Joe from Bronze Age
    Joe from Bronze Age 14 April, 2013, 09:48

    Katy, great article. Please write a letter to the Bee to counter the imbecilic articles being published there in blind support of Boss KJ and his gang of five whales

    Reply this comment
  6. Realist
    Realist 14 April, 2013, 10:40

    jman: What will draw that younger generation is quality jobs, what will draw those employers is that infrastructure you talk about. The young ones will have no issue taking a party bus to see the Warriors to get their B Ball fix

    Reply this comment
  7. deception pass
    deception pass 14 April, 2013, 12:19

    The Devils in the Details; that’s what I’ve thought since the arena deal was passed. I believe Sacramento is giving up way to much on this deal, and I really believe the Mayor is not doing his job, he was elected to do. He’s supposed to be looking out for the best interest of the Citizens of Sacramento, not his boy’s, in which I believe are going to make hundreds of millions of dollars on this deal. Not buying the Kings and building a new arena but from all the perks that have been given to them, “to get the deal done,” as KJ would say.

    Its interesting theat Burkle ifs one of the land owners were the proposed arena will be built. Isn’t he the on pushing for the site, wasn’t he the one that flew to NYC, met with Stern of 2 hrs about his vision to build a new arena on his property. This guy is going to get filthy rich.

    The Mayor is giving away 100 acres, just handing it over to his boy’s, and claiming its valued at 38 million (maybe I really don’t know, but doesn’t seem to add up to me). The mayor’s passion has pushed him over the top. His enthusiasm has corralled diehard fans and local media/papers to brush over some the facts, in which I hope will come out for public review sometime soon.

    This is a bad deal, the city will ultimately end up taxing the Citizens of Sacramento to cover the short falls to service debt. It just might not be the right time for Sacramento, maybe the Mayor should realize that start planning to get the City’s finances in order.

    Reply this comment
  8. Steve Mehlman
    Steve Mehlman 16 April, 2013, 08:03

    C’mon Hondo, equating building an entertainment and sports complex in Sacramento with Penn State and Rutgers?
    That’s lame even for you.

    Reply this comment
  9. Steve Mehlman
    Steve Mehlman 16 April, 2013, 08:07

    “Come to Sacramento, you know, home to the great roads, fantastic sewer systems and wonderful city services”.

    And I’m sure all you righties will support using tax money to fix the roads and sewer system and improve city services. LMAO!

    Reply this comment

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