Marcos Breton

Marcos Breton: Architects of Sacramento's arena deal explain why the naysayers are wrong

Published: Sunday, Sep. 29, 2013 - 12:00 am
Last Modified: Wednesday, Oct. 1, 2014 - 1:41 pm

There has been so much sound and fury over the proposed downtown arena in Sacramento that its costs and benefits are easily distorted.

Proponents such as Mayor Kevin Johnson and a coalition of business and union boosters describe it as an economic boon for Sacramento – a jobs and revenue bonanza. Opponents whose signature-gathering campaign was funded largely by a billionaire who unsuccessfully tried to move the Kings to Seattle believe that a $258 million public subsidy for the arena could wreck city finances.

It’s curious that the men who made the arena financing deal with the Kings – who know more about it than anyone else – are relatively quiet while less knowledgeable people debate the issue.

Sacramento City Manager John Shirey and City Treasurer Russ Fehr have a story to tell about the proposed arena that puts it in a sober context devoid of the hype of arena boosters.

Unlike many arena proponents, Shirey is respectful of those who wonder why the wealthy Kings owners don’t pay for the arena themselves.

“I acknowledge that people have a point,” Shirey said. “It’s a legitimate question.”

If I were to bet money, I’d wager that Fehr – in his heart – was as big an arena opponent as there was in Sacramento at one time.

A few years ago, when the Maloof brothers still owned the Kings, Fehr’s face would become anguished whenever the arena issue came up.

But if he had an objection to the whole idea, he kept quiet. As the lead financial officer for the city, Fehr was allowed to review the Maloofs’ finances, based on the terms of a massive loan between the Kings and Sacramento. But the deal precluded him from sharing specific details, except whether the Maloofs could make their loan payment.

Fehr kept the secrets – but he had a seizure while doing so.

I have a pretty good guess why: The Maloofs had no money to be viable owners and were the worst possible partners Sacramento could have. Fehr knew it and was one stressed-out guy.

“I was in this horrible position of confidentiality,” Fehr said. “The city attorney had resigned. I didn’t feel I had anyone to talk to and right in the middle of it, I had a seizure,” Fehr said. “It was unexplained. It took me a little while to get back, and I had millions of tests.”

When the Maloofs blew up the final deal to keep the Kings in Sacramento in April 2012, Shirey said it was because the Maloofs couldn’t even cover their share of the most basic arena costs.

“(The Maloofs) couldn’t make their payment for pre-development expenses,” Shirey said. “Thank goodness we didn’t get $100 million into the project and find out it was going to crater because (the Maloofs) didn’t have the resources.”

In public, the story became a bidding war for the Kings between Seattle investors and a new group assembled to keep the Kings in Sacramento.

But in private, the two men charged with shaping the nuts-and-bolts details of the Kings arena plan became full believers in it only when the team changed hands.

Fehr got better physically and, with his finance team, figured out a way to pay for the arena that was different from failed attempts in other cities.

Shirey, finally able to negotiate with Kings owners who had money, secured concessions on key points, such as cost overruns on the arena’s construction. They will be the responsibility of the new Kings owners. Because the Maloofs had no money, the city would have been on the hook for some arena maintenance in the previous arena deal. But now, the upkeep of the arena falls entirely on the shoulders of the new team owners – though the city will own the building.

Cost overruns damaged many a city vying to be in the sports business, but they won’t be issues here.

Meanwhile, Fehr’s financing plan has evolved to a point that some in the public may not fully appreciate.

The city will generate most of the $258 million by borrowing against city parking assets and issuing tax-exempt bonds.

Chicago faced withering criticism for selling its parking assets to a private vendor at a low price with a decades-long lease. Other cities borrowed against parking assets based on rosy projections of revenue from new parking structures that would bring big money and didn’t.

Fehr said Sacramento based its projections on existing parking garages and that Sacramento will retain control of them.

“That’s when I became sold – when the policymakers turned away from private-sector concessions and accepted a public model that put (Sacramento) in a long-term position of control,” Fehr said.

“We based our financial projections on existing historical cash flows … We’re not dependent on the arena itself to generate revenue to pay for the debt. That’s what makes this financing plan different from so many others. None of the revenue to pay down debt in our plan is generated by the arena.”

Some fear that Sacramento will jack up its parking rates to pay down its arena investment, but Fehr said Sacramento can’t do that.

“The city’s share of parking garages downtown is only 20 to 25 percent of the market. If we tried to jack up our rates, we’d lose business.”

Some say Sacramento is using taxes to pay for the arena. “People are purposely misleading other people,” Shirey said. “It is not taxes.”

Others say Sacramento’s plan is a raid on the city’s general fund.

“It’s not against the general fund,” Fehr said. “In the city financial reporting, it’s affiliated debt … It won’t be reported against our general fund debt ratio.”

What is the arena project then?

Fehr calls it what it is: an important “amenity” for the city with the Kings as an important asset. Shirey calls it a public policy call by the city.

“The way I deal with it is, if we hadn’t agreed to (a $258 million subsidy) this (ownership group) probably would have walked away,” Shirey said. “We are not a lucrative market. There is not a way for franchises to get their money back through lucrative TV deals here. We don’t have a lot of corporate wealth. Unfortunately, we are in a position where we have to make up other wealth that’s missing in our community.”

So why is this a good deal for Sacramento?

“While it may be downplayed in academic studies, the Kings are a great source of pride in this community,” Shirey said.

“Keeping the Kings is a way of offering something to generations we are trying to attract here. It adds to our economic power as a place to do business. The city has tried for decades to revitalize the J, K and L street corridors, and this is a way to add value to what we’ve already invested.”

Like it or not, it’s the straightest talk there is on why Sacramento should do this deal.


Call The Bee’s Marcos Breton, (916) 321-1096.

Read more articles by MARCOS BRETON



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