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Win or lose, railyard plans get new life

Originally published: 10/16/06

Through advertisements on TV and radio and in their mailboxes, Sacramento residents are getting an education this election season about the vast potential of the downtown railyard.

Even if voters defeat the plan to build a new Kings arena in the railyard, the campaign for Measures Q and R has directed the public's focus on the future for the long- dormant property just north of downtown -- a Superfund hazardous waste cleanup site that has frustrated city officials and developers for two decades.

"The good news here is that the railyards are really on the public agenda because of the arena discussions," said Robert Waste, a public policy professor at California State University, Sacramento.

That's a win for local politicians, who consider redevelopment of the 240-acre railyard -- once the biggest industrial hub west of the Mississippi -- a much bigger prize than a new arena and entertainment complex.

"Some people will tell you it's the most important infill project left in a big city in America," said Sacramento Vice Mayor Rob Fong.

The new public attention also could be a win for the Georgia developer in escrow to buy the property from Union Pacific railroad. If the railyard remains the city's top development priority, developer Stan Thomas may stand a better chance of getting the city and other public agencies to pony up the $500 million needed over 15 years to build streets, sewers, electrical lines and the other building blocks for development that the desolate railyard currently lacks.

Thomas has donated $1 million to the campaign for Measures Q and R. He publicly announced plans to give another $1 million but has backed away from that pledge since a Bee poll showed that the measures have scant voter support.

Q and R campaign manager Doug Elmets said helping pay for TV ads highlighting the railyard is clearly in the developer's interest -- regardless of whether the measures pass.

"This is a great way for Thomas Enterprises to make people aware of their venture," Elmets said. "Prior to the beginning of this campaign, very few people in Sacramento were probably even aware that we had a railyard. It was just this sort of dusty swath of land people would pass by on the way to Arco Arena."

Should Measures Q and R pass, Thomas would land a new $600 million publicly funded arena for his planned sports and entertainment zone -- a much bigger coup then just grabbing headlines.

"It's a large anchor that's going to be a huge draw, bringing 20,000 people to the project 200 days a year or more," said Suheil Totah, vice president of development for Thomas Enterprises.

Measure R also could be a source of funding for infrastructure in the railyard. The proposition would raise the county's sales tax by a quarter cent, which would generate about $1.2 billon. Half of that would be dedicated for an arena and surrounding improvements; the rest would be available to the county and its cities to use however they wanted.

"Whether the county puts in (another) $100 million to $200 million is really up to the Board of Supervisors," Totah said.

The renewed attention comes at a good time.

Sources close to the negotiations between Union Pacific and Thomas Enterprises say that, after three years of discussions, the sale of the property finally is nearing closure.

Thomas Enterprises has submitted a plan to the city that envisions 10,000 housing units, offices and enough retail lining the streets to fill a shopping mall. Historic railway shops would be turned into museums and a public market. One district would feature a man-made canal running through it.

And then there would be the sports and entertainment district, anchored by an arena.

Private investment in such a project could total $5.5 billion, and produce millions of dollars in sales and property taxes for the city each year.

Even before the arena campaign, City Manager Ray Kerridge had made starting the railyard development one of his top priorities. The city has been reviewing the application from Thomas Enterprises, and staff members say they expect the City Council to approve the development by April.

"Our goal is, with Thomas, to break ground next summer," said Assistant City Manager Marty Hanneman.

But big-ticket questions remain unanswered -- in particular, how to finance the streets, sewers, utilities and other infrastructure.

"The issues in the railyard are exactly the same as they've been for a long time: How do we pay for everything?" said Sacramento Mayor Heather Fargo.

Ongoing negotiations between the city and Thomas Enterprises aim to produce a financing plan.

In new suburban projects, the issue is much simpler. Developers generally pay for these items. But urban Superfund sites like the railyard operate under a whole different set of economics: Toxic materials from a century of railcar construction must be fully cleaned up. New streets leading into the development have to be elevated over the freight and passenger tracks. And the city must figure out how to pay for a planned transit complex that would serve Amtrak, light rail and buses.

"You've got contamination issues, you've got infill development issues; it's not like building in a green field," said Sacramento County economic development chief Paul Hahn. "You're actually replacing utility lines, you're building around contaminated soil. You're trying to link up with existing infrastructure.

"For the private sector alone, it just doesn't pencil out."

With the exception of the toxic cleanup, which would be the developer's responsibility, Thomas Enterprises has made it clear that the public will have to pick up a big part of the tab.

"For a project of this magnitude, there's going to be a significant public contribution," said Totah of Thomas Enterprises. "In terms of what the allocation is, that's something that will be decided when we reach agreement with the city."

The money could come from a variety of sources. Because the railyard is designated a redevelopment area, the city could issue bonds and pay them back from property taxes generated from the new development. It could seek federal and state grants. One potential pot of money the city is eyeing is the statewide infrastructure bond on the Nov. 7 ballot.

Sacramento County Supervisor Roger Dickinson, who represents downtown, said it wouldn't be the first time a Sacramento government entity spent hundreds of millions of dollars to redevelop an old industrial property.

He cited the example of Sacramento's former air bases, which like the railyard were heavily contaminated with toxic chemicals. Mather and McClellan have been revamped into bustling business centers. Mather also contains a new residential development and an air cargo hub.

Sacramento County's investment in McClellan and Mather is expected to total $422 million by the time redevelopment of the bases is completed 20 years from now, Hahn said.

Some civic leaders who support the railyard's redevelopment nonetheless worry that the new focus on the project will divert city attention from more manageable and equally pressing tasks -- such as cleaning up the K Street Mall.

Hanneman said this won't happen.

The city has been assembling property for two developments in the 700 and 800 blocks of K Street, the mall's most devastated stretch. But K Street has been absent from the headlines recently as the arena debate and the railyard have taken center stage.

"I'm conflicted because I think the K Street Mall is right up there on the top of the list as well, or it needs to be, and I don't think it's as costly," said local preservationist and housing advocate Kay Knepprath. "Developing the railyard is very expensive."

The Bee's Mary Lynne Vellinga can be reached at (916) 321-1094 or mlvellinga@sacbee.com.

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