Editorial: Council should take its time on arena deal

Published: Tuesday, Mar. 26, 2013 - 12:00 am | Page 10A
Last Modified: Tuesday, Mar. 26, 2013 - 7:45 am

The deal for a new arena in downtown Sacramento represents the city's biggest bet in decades.

It could pay off handsomely, enabling the city to keep its only big-league team and transforming downtown development. But it also presents sizable risks, requiring a public investment of at least $258 million – money that can't be used for other civic projects.

Before deciding whether to go all in, City Council members need to ensure they fully understand both the risks and rewards, even if that means putting off tonight's scheduled vote.

Mayor Kevin Johnson and City Manager John Shirey say that the city's taxpayers are well protected in this proposed agreement. They told The Bee's editorial board Monday that that this deal is better than the one approved last year because it could leverage a total investment close to $1 billion in the core of downtown. It may well be.

The investor group seeking to buy the Kings and build the arena also plans about $500 million in development – a 250-room hotel, 600 residential units and 775,000 square feet of office and retail – at the Downtown Plaza site near the arena. That's where it would make much of its money. While the city would not get a share of development profits, it would gain property taxes, according to the arena "term sheet."

This deal also includes more city-owned land that the ownership group could sell or develop as it wishes. The city would hand over some prime property valued at $38 million, including the 800 block of K Street and a lot at 4th and J streets, as well as the empty 100 acres next to Sleep Train Arena in Natomas.

Also new – and not included in the amount of the city's contribution – is the value of rent and advertising revenue for new digital signs the investment group wants. If all six were erected, the city could give up more than $1.6 million a year, based on contracts for existing signs.

Like last year's deal, the vast majority of the public share – $212 million – hinges on turning city-owned parking into cash, a financing deal only a few cities have tried, with mixed results. Because the city still owes money on some garages, the city would pay only interest until 2022, extending how long the parking bonds would have to be repaid.

Officials say they are using very conservative projections, but if parking proceeds aren't enough to repay the bonds, the city could be forced to tap into about $20 million a year in hotel tax revenues. What falls by the wayside if that becomes necessary?

Making up for $9 million a year in parking profits that now go into the city's general fund depends largely on arena attendance, including a 5 percent surcharge on every ticket. While officials again say they are being conservative, what happens if attendance projections are too rosy?

And there remains the big unknown of what would happen in Natomas after the Kings leave Sleep Train Arena and it is likely demolished so it doesn't compete with the new downtown arena. With the building moratorium in place until the levees are upgraded, there's no guarantee how quickly the site would be redeveloped.

Leaders of the ownership group, Ron Burkle and Mark Mastrov, made the rounds Monday in Sacramento, meeting with council members, labor leaders and a few select others. They did not make themselves available to The Bee or other media, avoiding questions they should be expected to address.

Council members should not vote until they get answers to their satisfaction. They should also take time to listen to residents. The term sheet, negotiated in private for weeks, was not made public until Saturday evening – after the three scheduled public forums.

There's no compelling need for an immediate vote tonight, and plenty of reason for the council to be respectful to residents by listening to comments, addressing concerns and waiting two more days to deliberate. With 24 hours notice, the council could hold a special meeting Thursday. That would still allow a vote well before a key meeting April 3 of NBA owners weighing competing bids from Sacramento and Seattle.

Yes, the term sheet is technically nonbinding, with details to be worked out over the next three to six months. But let's face facts – if the agreement helps persuade NBA owners to keep the team in Sacramento, it would be near impossible for the city to back out.

The time for tough questions – and answers – is now.

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