Three Sacramento residents filed a lawsuit in Sacramento Superior Court Tuesday alleging the city has broken the law on several fronts in its $448 million downtown arena deal.
The suit, filed by attorneys Patrick Soluri and Jeffrey Anderson, contends the city fraudulently under-valued the size of the subsidy it is providing developers as part of a tentative deal to build a sports and entertainment arena in Downtown Plaza.
The city has said it has agreed to place public assets valued at $258 million into the deal, which has yet to be finalized. The plaintiffs - residents James Cathcart, Julian Camacho and Isaac Gonzalez - contend the subsidy is, by their count, $338 million.
Cathcart and Camacho are members of STOP - Sacramento Taxpayers Opposed to Pork - a group that has called for a public vote on any arena deal. Gonzalez, a neighborhood activist, has challenged the arena deal at City Council meetings.
In their suit, the plaintiffs allege the city "concealed or suppressed material facts" and that Mayor Kevin Johnson and City Manager John Shirey "failed to disclose in the Term Sheet ... that they had privately agreed with the Sacramento Investor Group to subsidize its purchase of the Kings franchise."
The private investor group, headed by Silicon Valley entrepreneur Vivek Ranadive, signed a deal in February with the city to partner in building an arena to keep the Sacramento Kings from leaving town.
The lawsuit alleges that this public-private partnership with a group of investors amounts to an illegal give-away of public funds.
Attorney Soluri argued that additional subsidies, beyond the published $258 million, are essentially "hidden in plain public sight" in the deal documents. The city has stated it will turn over 2,700 of its Downtown Plaza parking spaces to the developers to operate, but the city did not include the value of that potential revenue as part of the deal.
It also did not assign any value to several pieces of property it would turn over to the developers to be used as billboard sites. Soluri's group also contends the city under-valued seven other parcels it is giving to the developers.
Soluri said his group hopes the lawsuit will give them the opportunity to obtain more city documents and to explore whether city officials colluded to hide the accurate subsidy amount.
City officials could not be reached for immediate comment Tuesday. However, in interviews two weeks ago, they said deal critics are overstating some numbers, taking others out of context and failing to acknowledge the full spectrum of the deal, which they say will bring substantial taxes and other revenues to the city.
They point out that the tentative deal obliges the private developers to pay the city at least $1 million each year for 35 years, even during years when the development group loses money. It also includes a revenue "waterfall" clause, requiring the development team to share a substantial portion of its earnings with the city during years in which the arena and ancillary development revenues top certain set marks.
The deal, expressed as a preliminary term sheet, signed by the city and the development group, is not the final deal document. An official deal is not scheduled to be finalized unless the development group is successful in buying the Kings basketball team. NBA officials are meeting in Dallas Wednesday to review competing purchase offers from Sacramento and Seattle groups.
In a tweet this afternoon, NBA TV legal analyst Michael McCann said arena deal lawsuits are common. "The allegations are serious, but these kinds of lawsuits are common with arena/stadium deals and seldom succeed."