Jose Luis Villegas / jvillegas@sacbee.com

Mayor Kevin Johnson, a strong supporter of a deal for a new downtown arena, is recognized during a Kings game earlier this month.

Editorial: New Sacramento arena deal is better and safer for city and taxpayers

Published: Thursday, Apr. 24, 2014 - 12:00 am

The new deal to build an arena in downtown Sacramento is better for taxpayers than the tentative one approved a year ago, allowing the city to use a more straightforward financing plan that is less risky.

That should give City Council members more confidence when they take definitive votes, scheduled for May 13. Tuesday night, most council members praised the changes outlined in a term sheet released this week.

The major improvements are that the city will own the land under the arena, as well as the building itself, and will have a firmer and higher guarantee on how much the Kings would pay under the 35-year lease – at least $6.5 million a year, growing with inflation to at least $18 million.

In what city officials call a major breakthrough, they say the revised financing plan no longer requires taking $9 million in parking profits that now flow into the city’s general fund, which pays for public safety and other basic services. To “backfill” that hole, the city had been proposing to cobble together a ticket surcharge, a portion of arena profits and other revenues.

Overall, the city’s contribution to the arena drops slightly, to at least $255 million – $223 million in cash and $32 million in land – or 53 percent of the arena’s cost.

That official figure, however, does not include the value of leases for six city-owned sites where the team will be allowed to put up digital billboards. (Clear Channel Communications pays the city $180,000 a year for each of its digital billboards.) It also doesn’t include profits that the Kings make from 2,700 city-owned parking spaces at Downtown Plaza, or whatever the team is able to get from selling the arena’s naming rights.

To be completely forthcoming, the city should put a dollar value, as best it can, on what it is now calling “in-kind contributions.”

Council members still have to face the fundamental question of whether the public is getting a big enough return on its investment. Most of the additional tax revenue for the city would come from the development of 1.5 million square feet of shops, apartments, offices and a hotel that the Kings owners are planning. City Treasurer Russ Fehr has estimated that amount at about $2.7 million a year at full build-out. But it could be a while before that materializes – 10 years, plus a possible 10-year extension under a proposed agreement.

The arena will generate a broader economic impact. Even if it’s not the $11.5 billion over 35 years claimed in a study by supporters – and such projections are typically overstated – the benefit will be substantial.

The team’s contribution rises to $222 million. It is paying $30 million for a practice facility, bringing the project’s cost to $477 million, as part of their promise to cover any cost overruns.

The city would borrow $212.5 million to build the arena (plus $86 million in reserves, interest payments before the arena opens and debt-issuing costs) and repay it with Kings lease payments, parking revenue and hotel taxes. Because these bonds will be taxable, the city would pay a higher interest rate to investors. The bonds would be repaid over 36 years, a total of about $690 million.

Under the old deal, the Kings would have paid the city about $3.7 million from ticket surcharges, plus a share of arena profits, at least $1 million a year and possibly more. But the city says that it would be unlikely to ever reap more than what it is now guaranteed, and that determining the profits would have been an annual source of potential friction between the city and Kings.

There are still points to be negotiated between the city and team before detailed agreements are made public. That’s scheduled for May 1, nearly two weeks before the council is to vote.

The city deserves credit for giving the public more time to study all the documents. This process is much more transparent than the rush job last March. That promises to make this deal better as well.

Read more articles by the Editorial Board



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