Officials put public share of Sacramento arena at nearly $256 million

03/01/2012 12:00 AM

03/01/2012 10:41 AM

As Sacramentans debate how much they should be asked to contribute to a new downtown arena, city officials Wednesday pegged the planned facility's public price at $255,530,000.

Documents released by the city show that figure represents 65 percent of the cost for what is now estimated to be a $391 million arena, compared with a 35 percent share from the private sector, including the Sacramento Kings.

The public contribution would come mostly from a plan to wring upfront cash from the city's parking garages. Officials characterized it as a fair amount for a city-owned arena, and said the Kings have more than stepped up to do their part.

The Kings agreed to put in $73.25 million, and Anschutz Entertainment Group agreed to pay $58.75 million to operate the arena for 30 years. AEG would share some of its profits with the city.

Another $3 million would come from a public fundraising campaign, led by Mayor Kevin Johnson and Councilman Steve Cohn, that would ask residents to offer donations in exchange for engraved bricks and plaques to be included at the facility site.

"If we want to have a new arena in Sacramento, I believe what we are recommending is the best deal that we could have come up with," said City Manager John Shirey.

The $391 million arena cost is a bump up from the previous $387 million estimate, due to new calculations of construction-related costs.

City officials today are expected to unveil more details of the financing plan in a 15-20 page "term sheet." Mayor Kevin Johnson and city representatives negotiated the deal over the weekend with the Sacramento Kings' owners, NBA officials and AEG.

The term sheet will go to the City Council on Tuesday for approval. Although the council vote is nonbinding, City Hall officials say it represents the critical yes-or-no council call on the deal.

Additional council votes will be needed down the road to approve environmental reports, contract documents, choose a private parking lease partner and deal with other technical issues.

Other key elements of the deal to be released today:

The Kings would sign a lease obligating the team and any potential future owners to remain in Sacramento for 30 years.

The city would allow the Kings to refinance the team's existing $67 million city loan, with better terms. The refinance likely would involve the city selling bonds to private investors and forwarding those proceeds to the Kings. The Kings would use the money to pay off the current city loan, then would make payments through the city to the private investors on the new loan.

A 5 percent surcharge would apply to all tickets sold at the arena, for sports and non-sports events. That money would go to the city.

The city would receive a percentage of net profits earned by the arena operator.

Associates of the mayor said the deal is solid for the city, and pointed to several recent arenas where teams put in less money than the Kings: Orlando, San Antonio, Memphis, Indianapolis, Charlotte, Cleveland and Oklahoma City.

The Orlando Magic put $50 million upfront into that city's $480 million arena, while the San Antonio Spurs contributed $28.5 million toward their arena.

In other cities, however, private contributions have been much larger. These include an arena for the New Jersey Nets in Brooklyn, and the existing Staples Center, home to the Lakers and Clippers and hockey's Kings.

Corporate money lacking

Sacramento officials said an arena that is largely funded by the private sector is not possible in Sacramento because it is a smaller-market town with a slim corporate base.

George Postolos, Houston Astros CEO and former head of the NBA Houston Rockets, agreed, saying the Maloof contribution appears notable. "In a market that size, that's a substantial contribution," he said.

Stanford University economist Roger Noll, who argues that sports stadiums don't provide net economic gains to cities, said he isn't surprised that the Maloofs are putting in more money than some previous NBA owners.

"Local governments are less willing to finance sports facilities than they were five years ago," Noll said.

Sacramento has gone to great lengths to avoid proposing a general tax increase to pay for an arena, an idea that previously was rejected by voters.

Instead, the city is looking to raise most of its contribution – maybe the entire $255 million – from its downtown parking garages, said Kunal Merchant, Mayor Johnson's chief of staff. Two possibilities: leasing the garages to a private operator in return for cash upfront, or creating a financing authority to borrow against future parking revenues.

Parking revenues will increase over time, officials said, as downtown grows. They also will increase when the arena is built and more people park on nights and weekends.

While there's no parking arrangement in place yet, Merchant said the city has vetted the idea well enough with experts to know it could work.

"Enough people have kicked the tires on this," he said. "We feel we'll generate $200 million" or more.

The city also expects to sell 100 acres it owns next to the current Power Balance Pavilion in North Natomas and possibly several smaller lots in downtown to contribute to the city share.

The Kings, as lead tenant, would pay a 19 percent upfront share. Some of that money is expected to come from the sale of the Power Balance Pavilion site. Kings owners say they also have agreed to pay the city an estimated $70 million over a 30-year lease period. Those revenues, however, are not directly out-of-pocket money from the team. Some will come from business taxes the team must pay, and the rest will be pass-through ticket surcharge revenue.

Kansas City comparison

Sacramento's profit-sharing arrangement with AEG appears more favorable than a similar deal in Kansas City, where AEG operates the city's Sprint Center.

In Kansas City, taxpayers get a slice of the arena revenues only if AEG's profits top 16 percent of revenue, an arrangement that has netted the city about $2 million a year.

Sacramento would get 15 percent of the first $10 million in arena profits, 30 percent of the next $5 million and half of all additional profits.

Sacramento city officials said they would provide details today about how the city and AEG plan to pay for any major arena upgrades over the 30-year life span of the deal. Such expenditures have caused financial headaches in other city stadium and arena deals.

City officials say that ICON/Taylor, the group chosen to develop the arena, has said it would guarantee the $391 million price.

Council members are being briefed on deal details this week in preparation for Tuesday's vote.

Councilman Darrell Fong, who has been skeptical of the plan to finance an arena, said the creation of a finance authority to control downtown parking is "one scenario that maybe has some merit" because the city would maintain control of its parking assets and avoid a 50-year lease with a private vendor.

"I have to look at the finer details (of the plan)," he said. "I'm very skeptical; you have to prove to me that it pencils out."

Councilman Jay Schenirer said he wants to see a more detailed plan to backfill lost parking revenue. City officials said those details have to be worked out as the city moves forward on its plan to generate cash from parking assets.

"If the numbers are there, the city maintaining control (of its garages) would be a good thing," Schenirer said.


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