Sacramento officials unveil new details on proposed arena deal

03/02/2012 12:00 AM

03/04/2012 3:21 PM

Sacramento officials released a raft of new details on the proposed $391 million downtown arena Thursday, including a VIP parking garage and special $1 ticket surcharge.

After hours of delay, the city produced the all-important "term sheet" spelling out the financing structure agreed to by city officials, the Sacramento Kings, arena operator Anschutz Entertainment Group and the ICON/Taylor development team. The document was released three days after the parties announced a historic handshake deal to keep the Kings in town.

With the release of the document, Mayor Kevin Johnson said the city met the NBA's March 1 deadline for crafting a deal.

"This is a huge milestone along the way," said City Manager John Shirey. "It was important to have all the parties agreeing to this."

While nonbinding, the term sheet must be approved by the City Council on Tuesday for the project to go forward. Among other things, city staffers are asking the council to spend $850,000 from the city's parking fund to move ahead on preliminary steps in the process.

Additional dollars would start flowing soon: City officials say the parties would need to commit by April 3 to spending a combined $13 million on engineering, environmental and other costs.

Of the $13 million, the city would put in half, taking dollars from its parking fund and money earmarked for redevelopment, while AEG and the Kings would put in the rest. These dollars are included in the total $391 million budget.

Much of what's in the term sheet was already known, including the city's $255.53 million contribution and the Kings' $73.25 million upfront share.

The documents show for the first time how the city would backfill the $9 million a year the general fund would lose once the city completes its plan to extract upfront cash from its parking operations.

The plan is to make up the difference through ticket surcharges, taxes generated by the arena, the city's anticipated share of arena profits and other sources. In the years before the arena opens, cash would be carved out of the so-called "parking monetization" – the linchpin of the city's share of the project.

The city said the parking program could generate $230 million in upfront cash toward the arena. But the documents also reveal that city staffers are still wrestling with exactly how to make the parking plan pencil out.

One approach could give the city more control over its parking garages and rates, but could expose its general fund to some financial risk.

Separately, the documents show that Sacramento developer David Taylor would team with Los Angeles real estate firm CIM Group to build a privately financed $25 million parking garage near the railyard arena. This garage wouldn't be part of the city's "monetization" plan.

Taylor said the lack of a VIP parking garage became a "sticking point" in talks last week among the city, the Kings and AEG, which would operate the arena and is contributing $58.75 million to the project. The 1,000-slot garage would be reserved for patrons sitting in luxury suites and high-priced "club" seats.

"We felt like it was critical in putting together the last pieces of the arena financing puzzle," Taylor said. He said LAZ Parking of Hartford, Conn., is expected to participate in the project.

Taylor said the city would get a share of profits from the garage, but that still has to be negotiated. Taylor, with ICON Venue Group of Denver, has already been tapped by the city to develop the arena itself.

In another key detail, the city and AEG agreed to tack a $1 service fee onto all arena tickets to create a building maintenance fund. It's supposed to raise about $1.2 million a year. The city said the fund is essential to prevent the city from being liable for runaway upkeep expenses as the arena ages.

The $1 service fee would be in addition to the 5 percent ticket surcharge, already announced, that would be imposed to help pay for construction.

Sports teams are leery of ticket surcharges – arguing that they raise prices to fans without putting any more money in teams' pockets. But Kings co-owner George Maloof said the Kings are "pretty comfortable" with the arrangement.

The document underscores the complicated trade-offs agreed to by the city, the team owners and AEG in Orlando, Fla., on Monday.

While the Kings would be tenants in the building, they would keep all game-night revenues from tickets, concessions, premium "club" seats and luxury suites. But the Kings would split 50-50 with AEG the revenue from arena advertising, including the naming rights.

AEG would control the lion's share of revenue from non-Kings events at the arena.

Maloof said details of the Kings' lease with AEG are still being worked on. "We're going to sit with AEG and go through some things with them," he said.

Under the plan, the Kings are supposed to earn at least $2.6 million in annual parking revenue during their games from city-controlled lots. If the revenue falls short, the city under certain circumstances would have to share some of its ticket surcharge revenue from non-Kings events. At the same time, the city would get at least 15 percent of AEG's profits from the building. And the city could host a dozen "civic-oriented events" each year at the arena, rent free.

The city said it would have to raise about $19 million from land sales, including 100 acres near Power Balance Pavilion, to make the whole project work. It identified four parcels whose worth it pegged at a combined $31 million for possible sale.

But the biggest chunk of city cash – $230 million – is supposed to come from the parking proposal. And the staff report makes it clear the city is still undecided on two possible models to make that happen.

A "concession agreement," in which the operation is leased to a private company, puts the financial risk on the company. If parking revenues plummet, it's the company's problem.

But the City Council might impose so many restraints on the company – including controls on parking rates – that the price could fall to $185 million or less, far below the amount needed.

An alternative model would set up a nonprofit corporation to issue bonds, essentially borrowing against future revenue. The corporation also might borrow against the city's hotel tax receipts, earmarking the proceeds for upgrades to the Community Center Theater.

This model could give the city more control over things like parking rates – but also bring more risk.

If revenues drop below what's needed to repay the bonds, the city's "general fund might have to be used to make those payments," according to a staff report. "That risk can be mitigated by using conservative assumptions."

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