Last week, Sacramento Superior Court Judge Eugene Balonon issued a tentative ruling in the lawsuit targeting the arena deal orchestrated by Mayor Kevin Johnson, a former NBA star. It supported petitioners’ requests that they be allowed to depose Sacramento Councilman Kevin McCarty and Sacramento Economic Development Director Jim Rhinehart about undisclosed dealings between city officials and the new Kings ownership group to help it buy the team.

The Sacramento Investor Group, led by tech entrepreneur Vivek Ranadive, purchased Sacramento’s NBA franchise from the Maloof family in May.

Arena deal: Many key issues remain murky

The arena deal has prompted questions over the lack of public debate about key details, dubious financial numbers from the city and the public subsidy the project requires. Also, last-minute legislation by Senate President Pro Tem Darrell Steinberg, D-Sacramento, would let the arena’s construction proceed without a credible environmental impact review.

Plaintiffs Issac Gonzalez, James Cathcart and Julian Camacho are members of Voters for a Fair Arena Deal. They hope to put the arena subsidy issue on the ballot in Sacramento.

Defendants, who include Johnson, City Manager John Shirey, Deputy City Manager John Dangberg and other city officials, have sought to keep the deal behind closed doors and off the ballot.

The lawsuit accuses city officials of making a secret deal to provide an extra $80 million of public money to help the investors’ group beef up its offer against a well-funded Seattle group that wanted to buy the Kings and move them to Seattle, which lost its NBA team to Oklahoma City in 2008. Plaintiffs’ attorney Patrick Soluri said city officials have committed fraud because they have not fully informed the City Council and the public about details of the deal.

The city subsidy, according to the lawsuit, is actually $338 million — not the $258 million the city claims.

In response, the defendants insist the information the petitioners seek is “undiscoverable, privileged information” and contend there was no secret deal. Defendants’ attorney Dawn McIntosh said in in a Thursday court hearing there is not even any formal agreement in place about building the arena in downtown Sacramento. McIntosh said the lawsuit was “a waste of everyone’s time.”

However, the City Council voted Tuesday of last week to begin eminent domain proceedings to acquire the property necessary in the development of the new sports arena.

The lawsuit’s plaintiffs want to depose McCarty and Rhinehart because they believe the city officials have evidence about the city’s undisclosed subsidies. While Judge Balonon indicated in his tentative ruling last week that he favored authorizing a deposition of McCarty and Rhinehart, he also said he would issue his final decision this week.

Councilman McCarty opposes the city arena deal, and thus far, has not responded to deposition requests. I contacted McCarty several times for previous stories about the arena deal, but he did not return phone calls or emails.

Stall tactics until the deal is done

Deposition notices were sent to city officials in September. But according to Soluri, the mayor and city officials have engaged in various avoidance tactics, including filing numerous objections to deposition notices, rolling demurrers, and refusing to comply with a court order directing them to reschedule a further hearing. Soluri said these were stall tactics was designed solely to delay the inevitable discovery until after the city’s expected formal approval of the arena in April.

Those behind the lawsuit are not the only ones who think that Mayor Johnson and other city officials aren’t being honest about the real size of the public subsidy. Public policy watchdog Eye on Sacramento says that when all of the publicly owned assets being thrown into the deal are accounted for, the public’s contribution is actually $375 million — far higher than the city’s $258 million claim.

The city also agreed to give the arena’s private development group the city’s empty 100-acre plot next to Sleep Train Arena in North Natomas and six other city properties, five of them adjacent to or near the downtown arena site. City officials are also giving away the city’s parking lot at the site, and the revenue from parking meters, after claiming the parking lots have no value.

Beyond the legal challenge to the city’s deal, there is also a ballot initiative petition to require a public vote on any public subsidy for a professional sports franchise.  The petition signatures are currently being counted.

However, it appears Mayor Johnson and the City Council will attempt to moot the result of that vote by pushing up their approvals of the arena prior to the June vote that would thereafter require voter approval.  Approval of the deal and related bond sales were previously scheduled for summer or fall 2014.

Craig Powell, president of Eye on Sacramento, calls this “stealing the election.”

The files on the arena lawsuit are available on the Sacramento Superior Court website, case no. 34-2013-80001489.

No longer is reporting the news enough apparently — the local media seems to want to be a part of the news. And why not? They stand to benefit handsomely should a new basketball arena be built in downtown Sacramento.

Most recently, Sacramento’s ABC Channel 10 News reporter Bryan May, who says he has been covering the Sacramento Kings and the arena story for 10 years, posted a comment on Twitter calling a Sacramento Taxpayers Opposed to Pork signature gatherer a liar, for saying that the arena deal will cost of the public $800 million.

From Twitter:

Wow, just had someone from STOP knock on my door & ask me to sign petition “before city spends $800m of your money.” When will the lies end

Sacramento Taxpayers Opposed to Pork is collecting signatures from Sacramento residents who want the arena subsidy to be decided with a public vote. STOP and other Sacramento proponents of the public vote have until Dec. 16 to turn in 22,000 valid signatures from registered voters located within the city of Sacramento.

Looking out for Sacramento taxpayers

Public policy watchdog Eye On Sacramento, recently researched and did a story on the Goldman Sachs documents showing that the City of Sacramento intends to borrow $304 million — $92 million more than the $212 million that the public were led to believe.

Eye on Sacramento estimates that the average Sacramento family’s share of arena bond costs will amount to a whopping $5,200. The watchdog group said because the city is not using a traditional 25-year term bond with fully amortizing annual payments, and “instead plans to issue an exotic 35-year bond that doesn’t start to fully amortize for 21 years, the city will incur $196 million in higher, unnecessary interest costs over its term, a stunning 73 percent hike in public costs.”

The watchdogs are lapdogs

“When you’re playing a shell game, you keep everything spinning,” wrote Paul Glegg on his blog, Game to 100. Clegg is a former editor and writer with The Sacramento Bee. “You use whatever diversionary tactics you can to distract attention. You put shills in the crowd to whip up excitement. You never want the suckers to figure out they’re being taken for a ride.”

Glegg, who was with the Bee for 32 years, was referring to the new arena project for the Sacramento Kings basketball team.

“The manipulators trying to rip off at least $258 million from the public to build a downtown arena have been playing fast and loose to keep their shell game going. Led by Mayor Kevin Johnson, they’ve sidestepped a public vote on the issue, concocted ridiculous economic benefit projections and pushed a city deeply in debt toward financial peril.”

Glegg explained how arena proponents have been greatly assisted by a local media “willing to sacrifice their watchdog role because of their own self-interest.”

“The Sacramento Bee and local television stations have a big stake in keeping the Sacramento Kings in town,” Clegg said. “The media are the cheerleaders whipping up the crowd.”

Sadly, Clegg is right. News 10’s Brian May is just one of many local sportscasters and journalists who have been pushing the heavily subsidized arena, while on-air, on the radio and in newspapers.

And Clegg doesn’t sugarcoat his former employer’s major role in this con. “The Bee has gotten on its high horse and is demanding the kind of accountability, transparency and accuracy from STOP that it has never demanded from Mayor Johnson and his back-room buddies,” Clegg said. “The newspaper’s front-page placement of the stories is designed to suggest major skullduggery by power players in the arena fight. Innuendo and guilt-by-association are used to up the journalistic ante.”

“I guess the newspaper’s editors realize that many residents are finally becoming aware how much their quality of life will deteriorate if the city siphons millions and millions of dollars from the public treasury to pay for an arena. The editors know voters will reject a subsidy to help billionaires and big developers reap a profit, and they know their own vested interests in the project will suffer.

Eye on Sacramento

“In January, city treasurer Russ Fehr issued a stunning report on the city’s expanding debt obligations: The city was approaching $2 billion in debt, half in outstanding borrowings, the other half in rapidly rising liabilities for employee pensions and retiree health care costs,” Powell recently explained.

“The city’s ratio of total debt to general fund revenue ($372 million) ranks among the highest in the country, which puts the city at greater risk of insolvency, particularly during economic downturns (like the one we’re slowing exiting),” Powell wrote in “Red Ink: Proposed Arena Bond Would Add To City’s Rising Debt.”

And here’s the real kicker:

“An NBA arena typically becomes functionally obsolete just 18 to 20 years after it’s built,” Powell said. “As a result, annual payments will likely be payable on the bond for 15 to 17 years after the new arena has reached functional obsolescence, putting the city in the likely position of having to finance a second arena (to keep the team) while still making jumbo payments on the first one (if it even still exists).”

He added: “By that time, of course, every current councilmember and senior city manager will have almost certainly moved on. But city taxpayers will still be here, scrambling to handle the arena deal’s heavy legacy costs.”

Despite insistence from Convention Center officials that the center is an economic driver, a new report shows quite the opposite; the convention center is an economic sinkhole.

That sucking sound coming from the downtown is $16 million in annual losses over a 10-year period, and cumulative losses over the past 14 years of $218 million — greater than the city council's proposed $211 million cash subsidy of the proposed sports arena for the Sacramento Kings.

The city has an answer for this conundrum: rebuild an even bigger, more expensive Convention Center, rather than outsource the convention business, as most large cities are doing.

According to Eye on Sacramento, the public policy watchdog group which produced the report, the annual $16 million convention center deficit is being funded by the city's 12 percent hotel tax. “Fully four-fifths of the $20 million annually brought in by the hotel tax is consumed by losses at the convention center, while most California cities use their hotel tax revenue to fund an array of services, particularly support for the arts,” EOS reported.

Eye on Sacramento has worked for several years for transparency and effectiveness in Sacramento local government. The group has produced many in-depth reports on areas of city government, including crunching the real numbers on the proposed Kings arena project.

Convention center losses = 160 new cops

Eliminating the $16 million annual subsidy of Convention Center losses would allow the city to hire 160 new police officers, EOS found. “The annual loss equates to 59 percent of the new taxes the city is collecting from voter passage last year of a one-half percent hike in the sales tax, Measure U. The annual $16 million loss is more than the city spends out of its general fund each year on park maintenance.”

The Sacramento Bee, the city’s newspaper of record, has been silent on the new report, released September 4. Craig Powell, the President of Eye on Sacramento, said he sent several emails including the report to the Bee editorial board, but has not even received a response.

However, the Sacramento News and Review, an alternative weekly newspaper, did a comprehensive story on the convention center report.

I recently spoke with Powell about the EOS report.

“City leaders have a growing penchant for creative, and aggressive, municipal financing,” he said. “The city is poised to announce plans for both a major expansion of the 134,000-square-foot convention center and a $50 million rehab of the 2,422-seat theater.” The theater remodel has been driven by legal pressure to bring the theater into compliance with the Americans With Disabilities Act.

But according to Powell, there are two problems:

* The convention center expansion and theater rehab would be financed almost entirely with new city borrowings.

* And the only available funding source for debt service on such borrowings — the city’s 12 percent hotel tax — is already slated to serve as collateral for the approximately $250 million of bonds the city plans to sell to finance its promised $211 million cash subsidy for the new arena (in addition to approximately $140 million of noncash city subsidies).

It should be difficult for the city to justify spending $50 million to $200 million on expanding the convention center when its existing operations are running up eye-popping losses, Powell explained. But the city is about to double down on failure based on the argument that Sacramento needs to expand exhibit space to remain competitive with other West Coast cities.

Hotel tax is city revenue source

Powell said Californians had no idea how the hotel tax would expand as a revenue source for revenue hungry local governments, or how quickly local governments would come to rely upon it. The “Transient Occupancy Tax” was first passed in Sacramento in 1965 as a 4 percent hotel tax. It was raised to 5 percent in 1968, and by 1978, was up to 10 percent.

Voters approved a 1-cent increase in 1990, a ½-cent increase in 1992, and another ½-cent in 1994, bringing it to today’s 12 percent.

According to Powell, the city has overcommitted the 12 percent hotel tax to fund:

* Collateral for the repayment of hundreds of millions of dollars in bonds to finance the construction of a sports arena at Downtown Plaza;

* Funding the expansion ($50 million to $200 million) of the Sacramento Convention Center;

* Helping finance a $50 million rehab of the Community Center Theater; and

* Funding a number of projects for Sacramento's struggling arts community.

Had Sacramento city councils ever allowed development along Sacramento’s two beautiful rivers — the Sacramento River and the American River — perhaps Sacramento would be a destination point, as other river cities are. Sacramento is a valley town and is not a prime destination point.

In the real world, private sector businesses outgrow existing facilities before committing to build larger structures. Building a bigger convention center will not turn Sacramento into a destination city, and will only force Sacramento taxpayers deeper into the unsustainable money pit.

By Katy Grimes

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.”

March 30, 2013

By Katy Grimes

SACRAMENTO — The unusually speedy approval of a new NBA arena for the Kings basketball team in the heart of downtown Sacramento leaves many details and unanswered questions on the table, including how this arena project possibly will be completed and ready for opening by 2015.

Approved by the Sacramento City Council, the latest plan uses overstated revenue projections, grossly overstated projected attendance numbers and city-owned parking garages to sweeten the finances. As with all of the previous schemes to keep the Sacramento Kings in town in a luxurious arena, neither city officials nor local news media have ever performed due diligence to expose the questionable business deal it will be for taxpayers.

Local media have been cheerleading the project, with little criticism or analysis. It’s another typical government-involved project, with bad numbers, pie-in-the-sky plans, lots of hype and no accountability.

Impacts on the city

A project of this magnitude will impact downtown parking, local businesses, housing and commercial property prices, traffic congestion and even air quality. Projects a fraction of this size are required to comply with extensive state mandated regulations, including Environmental Impact Reports and the state’s California Environmental Quality Act.

Many say that, given how Sacramento officials have already rammed through the term sheet approval in record time, they will also try to ram the development process through, without giving residents and businesses the standard allotted time to question the process and project.  And given the California Legislature’s recent history working around CEQA regulations for politically favored projects, could city officials already be working to ensure this project also is exempted from the state’s strict environmental guidelines?

Sacramento CEQA exemption

I contacted Senate President Pro Tem Darrell Steinberg, D-Sacramento, to find out if he plans on sponsoring legislation for the Sacramento arena similar to AB 900 and SB 292, which were passed last year and streamlined the CEQA process for Los Angeles-area sports stadiums. AB 900 was a general bill and expires on Jan. 1, 2015.  But SB 292 specifically was targeted at the $1.2 billion stadium for downtown Los Angeles being sponsored by the Anschutz Entertainment Group.

“It will be up to the government to decide if the project falls under the AB 900 criteria,” said Rhys Williams, Steinberg’s spokesman.

But in a later phone call, Williams said, “No plan was in place to fast track the stadium through CEQA, unless the project meets AB 900 criteria.” Williams also noted that Steinberg authored AB 900.

I also contacted Sacramento City Manager John Shirey to inquire about a CEQA exemption for the arena project. Shirey was not available, but spokeswoman Amy Williams said she hand’t heard of anything involving CEQA exemptions for the arena project, and said she would ask others working on the project for the city. I did not hear back from Williams.

Interestingly, I also contacted Anaheim city officials. Anaheim was in the running two years ago to acquire the Kings. Part of their proposal was to increase the size of the Honda Center indoor arena. Ruth Ruiz, Public Information Officer with Anaheim, forwarded the city-led Environmental Impact Report summary which found the Honda Center would not fall under CEQA guidelines because the expansion was only intended to enhance the design and services offered at the arena, and would not increase the maximum seating capacity.

Unnecessary financial risk

Arena opponents are concerned that Sacramento is opening itself up to risk it cannot afford. Eye on Sacramento, a public policy watchdog group, compared Sacramento to Stockton, which filed for bankruptcy protection after spending tens of millions of dollars on an arena and other publicly financed facilities.

Others are concerned about the increasing number of government projects will continue to be exempted from California’s unusually strict environmental regulations — regulations which have killed many private sector projects.

Part Two of this two-part series will be on the stadium and jobs creation.