Kings cite 'substantial' losses if arena project is delayed, demand opponents post $100 million bond

07/16/2014 8:57 AM

07/16/2014 11:19 PM

The Sacramento Kings, defending their arena construction project against a citizens’ lawsuit, are demanding that project opponents post a $100 million bond to cover the “substantial” losses the team would suffer if litigation delays completion of the arena.

In court papers filed this week, Kings chief financial officer John Rinehart said even a short delay in the start of construction at Downtown Plaza could have enormous financial consequences, pushing the entire project beyond its anticipated October 2016 opening. Rinehart said the team would lose large amounts of revenue if the arena doesn’t open on time.

It’s long been known that the NBA has the right to buy the Kings and move them out of town if the arena isn’t open by fall 2017, or one year past the scheduled opening. That deadline is part of the terms the league set in May 2013, when it vetoed a proposal by the Kings’ former owners to sell to a group seeking to move the team to Seattle. The league then approved the sale of the team to a group of investors led by Silicon Valley tech executive Vivek Ranadive.

The latest court filings by the Kings and the city tackle a different but related question: the alleged financial impact of a delay in construction. Even if the building opened in time to satisfy the NBA, the Kings say they’d suffer losses if they miss the scheduled October 2016 completion.

“The economic harm of delay would be significant, widespread and potentially irreversible,” Rinehart said, arguing that project opponents should be required by the judge to post a $100 million-plus bond.

The citizens’ lawsuit, filed under the California Environmental Quality Act, or CEQA, is coming to a key juncture. The arena opponents are pressing for an injunction halting the project, and a hearing on that request is set for July 25 in Sacramento Superior Court.

Like the Kings, city officials want the plaintiffs to post bond to protect the city against financial losses. City Treasurer Russ Fehr, in a court filing, said the city plans to execute an interim financing package sometime next week to cover its share of the project. The city would lose $5.7 million if the arena project got hung up because of the litigation, and the plaintiffs should have to post bond to cover those costs, Fehr said.

James Moose, a prominent Sacramento environmental lawyer not connected to the arena case, said “it’s not uncommon” for judges to require plaintiffs in CEQA cases to post bond if they obtain an injunction halting a project. In deciding whether to require bond, Moose said, the judge would take into account a variety of factors, including the strength of the plaintiffs’ case as well as their financial resources.

Rinehart said a small delay would create enormous headaches. With demolition expected to begin at Downtown Plaza later this month and continue through September, the team’s CFO said “mass excavation” must begin before the rainy season starts. Otherwise, the construction timetable could slip considerably, he said.

He said the Kings have already spent around $60 million on the project. That figure includes $36 million spent to buy Downtown Plaza, as well as architect’s fees and other expenses.

The team’s financing costs would climb by $2.5 million if the project slides beyond October 2016, he said. Also, the team would face “potential financial penalties due to the NBA in excess” of $1 million.

The prospect of penalties hadn’t been made public before. A source in the Kings organization said that, regardless of when the arena opens, the NBA could fine the team for missing certain “development milestones” along the way.

Kelly Smith, the lawyer for the plaintiffs, wasn’t available for comment. His clients filed suit in May, one day after the City Council approved a development agreement and agreed to contribute $254 million to the project.

The lawsuit, filed by a group led by retired Caltrans director Adriana Saltonstall, says the arena would create enormous environmental harm to the central city. The suit also challenges the constitutionality of a bill signed by Gov. Jerry Brown that makes it much harder for opponents of the arena project to get an injunction blocking construction.

A second group filed a CEQA suit of its own last month. The two cases are being coordinated, meaning they’ll have joint court hearings.

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