Paul Kitagaki Jr. / pkitagaki@sacbee.com

Mayor Kevin Johnson counts the votes in favor of a tentative term sheet for a new downtown arena in March 2013. The City Council is set to vote May 20 on the final deal.

Editorial: Reward outweighs risk in Sacramento’s historic Kings arena deal

Published: Tuesday, May. 13, 2014 - 12:00 am

The deal for the planned arena in downtown Sacramento comes with a certain amount of risk. Nothing of value is ever gained without it.

But the agreements to be voted on May 20 protect taxpayers enough that City Council members can confidently move forward on a plan that promises huge rewards for the city and the region. The arena has the potential to revitalize a tattered downtown, and that will benefit Sacramentans who have been frustrated by the core’s decline and many delays in restoring it.

Certainly, the deal is safer and simpler than the one on the table until last month. Still, council members should be fully aware of what they’re committing to on parking and what they’re giving up on digital billboards.

For the city’s financing plan to work, it needs more parking revenue – $7 million a year by 2019-20. While city officials stress that the increases would happen with or without an arena – as the parking system is modernized and rates are raised to keep up with inflation – motorists will pay more, particularly downtown during arena events. Additional commercial streets will get meters.

Under the deal, the city is granting the Kings six city-owned sites for digital signs, which team President Chris Granger told The Bee’s editorial board Monday are essential to land major sponsors. That means an exception to city policy to limit visual clutter by requiring that an existing billboard be taken down for each new one that is put up.

Also, the Kings are not getting charged any rent, unlike Clear Channel Communications, which pays $180,000 a year to lease each of its sites. That “in-kind contribution” is not counted as part of the city’s total subsidy of at least $255 million – $223 million in cash and $32 million in land – or 53 percent of the arena’s total cost.

The city plans to borrow $212.5 million for the arena and another $86 million for reserves, interest payments while the arena is under construction and debt-issuing costs. The major positive change from the previous deal is in how the city plans to make its bond payments. Instead of counting on a ticket surcharge and a share of arena profits, the city gets the certainty of a rent check from the Kings – at least $6.5 million a year, rising with inflation to at least $18 million. With that change, the city no longer plans to take $9 million a year in parking profits from the general fund, which pays for basic services.

City Manager John Shirey told the editorial board Monday that while “there’s no such thing as no risk,” the city has done everything possible to minimize it. He conceded the “opportunity cost” of not using the city’s limited money for other projects, but says the arena is the best available investment with the biggest return.

Ideally, the public would be putting in less money. But in the world of professional sports and with the realities of the Sacramento market, that’s wishful thinking.

Much of the payoff would come not from the arena itself, but from office, retail and hotel development surrounding the Downtown Plaza site. There’s no firm timetable, but Granger says it’s in the team’s best interest to have projects done when the arena opens in October 2016.

The city is about to make a decision on the arena. Council members and the public have another week to sift through more than 2,600 pages of documents. But city officials have done their job well, and there don’t appear to be any red flags that should stop this historic deal.

Read more articles by the Editorial Board



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