Park and play

Is Sacramento willing to put $2 billion on the line in order to keep the Kings?

Before you say that building a new arena is not about the Kings, don’t. We’d all love for the city to have great new civic amenities like a cutting-edge performing-arts center, or a new zoo, or a streetcar system.

But how much time and money is the city investing in any of those things at this moment—during the worst recession and deepest budget cuts the city has suffered in

generations?

Back in May, the Kings owners, the Maloof family, set a March 1 deadline for the city to figure out how to build a new arena for the Kings to play in, otherwise they were taking the team to Anaheim. That’s when the effort to build a new arena began again in earnest. More recently, the Maloofs have said there’s some flexibility in that deadline. But notice who is calling the tune.

It’s about the Kings.

And now there is a last-second play in the works—a plan to privatize the city’s parking services, and the revenue it would generate for the next 50 years, in exchange for arena cash.

But that may mean giving up as much as $2 billion in future revenue in order to subsidize an arena.

In Sacramento, voters have been skeptical about using public money to help the Kings. In 2006, voters rejected a plan to raise sales taxes to build an arena. But this time arena boosters—including Mayor Kevin Johnson’s Think Big Sacramento arena task force—have deliberately set out to avoid any public vote.

That’s a deal breaker for City Councilwoman Sandy Sheedy, who said it’s unacceptable to risk that $2 billion in revenue without public approval.

“We’re talking about locking up a set of public resources for 50 years, to build an arena that might not last much more than 20 years. I think the public should have a say in that,” Sheedy told SN&R.

She’s not the only one calling for a vote. And that’s not the only reason this latest arena plan seems to be a long shot. The most difficult and important details of the plan are still unresolved, with just a few weeks until that deadline. And the arena-financing plan will likely only be fully revealed to the public just days before the city council will be asked to approve it. No pressure.

OK, it’s not just about the Kings. But neither is it really about needing a place for big concerts and Disney on Ice and the like. Sacramento does OK in that regard. The sound is awful, but Lady Gaga came last year. And there’s some evidence that Sacramento’s reputation as a backwater has as much to do with its proximity to the Bay Area than to a lack of concert facilities.

The push for a new arena is, however, about development, as much as it is about sports. Since before the Kings moved to Sacramento, pro-sports facilities have been intertwined with big development dreams. And the city of Sacramento has chased after the arena as a sort of silver bullet downtown-development project for more than a decade.

Like a lot of Sacramento’s big ideas, the building of a downtown arena is one that’s been tried elsewhere. Over the years, city council members have taken junkets and heard countless reports on how arenas have

revitalized downtowns in Indianapolis, Denver and Kansas City, Mo.

Arena plans have come and gone, and more often than not, they’ve been tied to big development plans. Often the idea is that the development can help pay for the arena. Kind of a twofer for the developers, the team, the city; everybody wins.

Back in 2005, it was a scheme to open up the farmland and marshes north of North Natomas for development, using profits from the construction to pay off the bonds used to build an arena. That plan collapsed under its own complexity.

Likewise, last year there was the “convergence” proposal, a complicated land swap involving the Arco Arena site, the downtown Sacramento rail yards and the state fairgrounds at Cal Expo. That was scuttled when the Cal Expo board decided it would rather pursue its own real-estate schemes without the added burden of funding a basketball arena.

More direct-funding plans—like raising taxes—have been no more successful over the years.

The 2006 campaign to pass a sales tax to build a new downtown arena blew up spectacularly. Partly because the Kings owners, the Maloof family, publicly said Measures Q and R, already on the ballot, really didn’t bring them enough revenue.

Even as the campaign was unraveling, the Maloofs decided it would be a good idea to play themselves in a Carl’s Jr. commercial about rich playboys stuffing sloppy burgers in their faces and washing it down with fancy booze. Measures Q and R became shorthand for the supposed impossibility of getting voters to fund a new arena.

Still, it’s clear the Kings only stay if the city of Sacramento is willing to pay.

“It won’t happen without public participation,” downtown developer David Taylor concluded last summer, while delivering a report to city council showing a downtown arena was doable.

Taylor’s report kicked off the latest run at a new arena. With help from the ICON Venue Group, Taylor estimated such a facility would cost $387 million.

Even then, critics said the estimate was low-balling it. Late last year Think Big Sacramento said that certainly some new VIP parking would be needed. The new estimate ticked up to $406 million. Not such a big revision, true, but a possible sign of more to come.

The Taylor report led to the formation of the mayor’s initiative, Think Big Sacramento, which was also sort of an outgrowth of an earlier Johnson effort, called Sacramento First.

Long story short, lots of meetings and press conferences and brainstorming about how to generate hundreds of millions in “public participation” without voter approval.

For example, Think Big suggested ticket surcharges to fund an arena, or the sale of big chunks of city land to finance the facility. A new arena could be festooned with telephone towers and billboards, generating needed fees. Each idea could generate a chunk of cash.

So why is it they settled on privatizing public parking, of all things?

It turns out that parking operators and banks have wanted to get their hands on the parking system for years.

Even before Think Big came along, banks and parking vendors have repeatedly approached the city to consider “monetizing” the system.

It’s a steady, almost guaranteed, source of revenue. Private companies promise to run the system more efficiently, to make investments and upgrades. The idea is that it gets to keep some or all of that parking revenue.

The most famous, or notorious, example of this sort of deal is from Chicago, which privatized its parking system, leasing it for $1.2 billion to a private company. Parking rates doubled, even quintupled in some places. Recent audits found the city of Chicago lost out on about $2 billion in the deal.

City Manager John Shirey told SN&R that nightmare scenario won’t come to pass here in Sacramento. For one, Chicago privatized its parking system and then paid bills with the money. Here we’re talking about investing that money in something that should, it’s hoped, make money.

As it’s drawn up, the city would lease its parking lots and street meters to private-parking operators for perhaps 50 years. The private-parking companies, in exchange for the hundreds of millions in revenue, would pay an upfront cash payment of perhaps $200 million, maybe more, maybe less, depending on how the deal is structured.

That would go a long way, though perhaps not all the way, toward the city’s share of a basketball arena.

The value of the contract would be based largely on the revenue that the system generates now, but also what it’s likely to generate in the future with some investment and improvement.

Right now, the city’s parking garages and meters generate about $9.4 million a year in much needed revenue. That’s money that goes right into the city’s general fund.

If you multiply that $9.4 million by 50 years—the length of time that the parking system might be leased to a private company—you about $470 million, almost a half billion dollars.

But City Treasurer Russ Fehr estimates that Sacramento’s public-parking system will generate closer to $2 billion over the next 50 years—once you figure in raising rates and increased demand.

But if you want to monetize the parking system and get the value out of it now, you have to settle for a value that’s much lower than its potential cash flow.

A report completed in November by Bank of America estimates that $170 million to $245 million could be generated by such a contract.

The mayor is hopeful a deal will come in on the high side of that range, but there are lots of reasons it could come in lower.

For example, if the city wants to keep some of that important revenue flowing to its general fund, that makes the value of any contract a little less.

If the city wants the people who work at those facilities—all union employees—to remain unionized and make relatively good wages and benefits, the value to a potential vendor goes down. If the city imposes conditions keeping parking rates relatively low, that may also decrease the value, too.

And any parking vendor will of course be negotiating for the lowest payment and the most revenue.

Next problem, the city owes $50 million on the bonds it used to build three of the existing downtown parking structures. So subtract that from the value of any contract.

Even if the city can generate enough of a nut to get the arena built, can Sacramento really afford to take $9 million away from the city’s general fund every year?

The city has a structural deficit of $26 million in its budget right now. City council members have so far said that any parking revenue diverted from the general fund has to be replaced.

Assistant City Manager John Dangberg, who has been shepherding the arena project full time, said that number will have to be backfilled by other sources of revenue—sources created by the project itself.

Certainly, the arena will generate something in sales and property taxes. Some additional revenue could be generated by event parking at the facility, assuming the arena includes a new parking structure. Dangberg also mentioned ticket surcharges as a possible way to repay the city’s general fund for the lost parking revenue.

But these details remain to be negotiated between the city, the team and the NBA, with just weeks to go before the deadline.

The devil, as they say, is in the details, and the details may only come into focus at the last possible moment.

The city will almost certainly make a decision regarding financing a new arena without a detailed plan for what to do with the old arena. Who will pay for demolishing the arena? How will the land be redeveloped? What kinds of incentives will the city have to provide, if any, to attract a new tenant?

“Natomas is a big site, it’s going to take a lot of work over a long time to work that out,” said Dangberg.

Also yet to be determined in the ongoing closed-door negotiations is what to do about the nearly $70 million that the city loaned the Kings back in 1997 to keep them in town. The agreement stipulates that the Kings can’t leave town without repaying the loan. Danberg said it and can’t be rolled into a new arena deal as its “contribution” toward a new facility.

Then there’s the question of a contribution from a possible arena operator. The city has courted Anschutz Entertainment Group to operate the facility. Shirey told SN&R that Sacramento is lucky to have a multinational sports and entertainment player like AEG interested in Sacramento. But the city may have its hands full with the powerful company, which recently got state environmental law changed to help its stadium project in Los Angeles (see “AEG, for the win?” by Nick Miller; SN&R Feature; November 10, 2011).

It’s been widely speculated that AEG would, if it became a partner, kick in some cash, perhaps $50 million, as it did in a recent deal in Kansas City.

But that Kansas City deal has been criticized, among other reasons, for putting AEG’s investment ahead of Kansas City’s when it comes to sharing profits.

And there are other factors that may drive up the costs of an arena. If the city goes ahead with the arena project, it may take advantage of that new law AEG lobbied for, allowing for expedited environmental review. But in order to qualify, the building would have to be built to “LEED Silver” energy and environmental standards. That would drive the price tag up.

Also, the city may donate property it owns in the downtown rail yards to be the site of the new facility. But that land was bought several years back with Measure A sales-tax money—that’s money specifically earmarked for transportation projects.

Since the arena is not a transportation project, the Measure A fund would have to be reimbursed $10 to $20 million.

Dangberg says that the refund of the Measure A money is already figured into the arena price tag. But we still don’t know exactly who is going to pay that money back.

That land is also supposed to be the site of Sacramento’s future, state of the art, “multimodal” transportation hub. It’s going to be some trick fitting the arena on fairly small parcel of land along with light rail, Amtrak, Sacramento Regional Transit, Greyhound bus, and possibly streetcars and high-speed rail.

“They say there will be room. I’m not sure about that,” said Bob Blymyer, executive director of the Sacramento County Taxpayers League.

The project would also require the city to accelerate the construction of needed infrastructure at the site—including extending several streets, moving utilities and building new storm-drain facilities around the arena site. No one yet knows where those millions in new infrastructure costs will come from, but they have not been included in the $406 million arena estimate.

It’s also not clear if the new arena site will require a new freeway interchange to be built at the nearby Interstate 5.

“Obviously, you’re going to need some major upgrades in terms of automobile traffic,” said Blymyer, who has worked for Regional Transit for three decades.

Dangberg says he doesn’t think the city will need a whole new freeway interchange—though he acknowledges road improvements will be needed.

Just how extensive the new infrastructure will need to be can only be determined by a full environmental-impact report.

But the pressure will be on for the city council to approve an arena-financing plan long before that EIR is completed.

Blymyer thinks that once you start adding up these hidden and unaddressed costs, the price tag for a new arena is likely to be closer to $500 million to $600 million.

With other arena proposals that have come and gone over the last decade, the ballot box was there to guard against a bad deal. Technically, the council may be able to tap the parking revenue without voter approval. But there’s growing resistance to that idea.

“This is a backdoor way of taking money out of the general fund and avoiding a public vote,” said Tab Berg, a Republican political consultant and a vocal critic of the parking plan.

Berg has started a vote-on-the-arena campaign, mostly using Facebook and Twitter and the occasional op-ed piece, to try and force the issue.

“It’s incredibly cynical to say, ‘This is incredibly important for our city,’ but the community has no say,” he told SN&R.

He’s got at least one ally on the city council in Sheedy, who took a lot of heat for suggesting a public vote back in the summer, and for commissioning a poll which she says shows that Sacramentans want a vote on the plan.

She was attacked in The Sacramento Bee editorial pages, where her poll was called “an unhelpful sideshow.”

But Sheedy has persisted, and has asked the city manager and city attorney to prepare possible language for a ballot measure. And privately, some city council members are at least considering the idea of a public vote.

The city council would have to act by February 21, in order to place a measure on the June ballot. That’s cutting it pretty close, considering that there might still be no detailed financing plan at that late date. But Sheedy says that the council can at least put a general “advisory vote” on the ballot, something that gets the sense of the voters.

“This is going to be the largest project we’ve ever done in this city,” said Sheedy. “The public needs to have a say.”

If the city council won’t schedule a public vote, a motivated group of citizens could gather enough signatures to put a referendum on the June ballot.

That would be more like a revolt against, rather than just a rejection of, public money for the Kings.

Of course, Dangberg insists it’s not just about the Kings.

“The bigger goal is to not just to have the NBA here in town, but to have this wonderful facility that this region deserves,” he says, adding, “But we’ve got to do that in a responsible way.”