The Sacramento City Council provided mostly glowing reviews Tuesday night of the city’s plan to help finance a new downtown sports arena for the Kings.
Most council members who asked questions and provided feedback during a briefing on the $477 million project at Downtown Plaza spoke favorably of the deal.
“It’s such a good investment for Sacramento at every level,” said Councilwoman Angelique Ashby.
A report released Monday shows that the project cost has increased from $448 million. The added price tag will be covered by the Kings, who said they are dedicating an additional $30 million to the project to fund a team practice facility and upgrades to L Street on the southern edge of the arena site.
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At the same time, the city’s contribution has decreased by $3 million, to $255 million. That total includes roughly $223 million in cash and $32 million worth of properties that will be granted to the Kings’ ownership group. The Kings are contributing $222 million.
The City Council is expected to approve the project’s financing plan, development agreement and environmental report at its May 13 meeting. Kings officials said they plan to begin demolition of Downtown Plaza immediately after that council vote.
The lone voice of concern from the council on Tuesday came from Councilman Kevin McCarty, who has voted against most arena-related spending plans before the council over the past year.
McCarty asked that a price tag be placed on ground leases the city is providing to the Kings to erect up to six digital billboards around the city and city-owned parking beneath Downtown Plaza being transferred to the team. Those contributions are not included in the city’s $255 million payment.
Most of the nearly two dozen members of the public who addressed the council also expressed concerns with the arena project and plans by the Kings to develop 1.5 million square feet around the arena into a mix of office space, retail, apartments and a hotel.
Nearly 20 members of Unite Here – a coalition of labor unions representing hotel and food service workers – attended the meeting clad in red T-shirts. The group has asked the city to delay approving entitlements for the ancillary development. Unite Here wants the workers in that ancillary development to be unionized.
“The new arena should preserve good jobs that me and my co-workers rely on,” said Francisco Garcia, who works in the catering department at Sleep Train Arena. “My tax dollars are going to make this project possible.”
Most of the city’s contribution – $212.5 million – will be in the form of bonds backed by parking revenue. Another $10 million will come from available parking money and cash generated by the city’s sale of the downtown Sheraton Hotel in 2008.
Using parking revenue to pay off the arena debt leaves a hole to fill in the city’s general fund budget, and city officials said they have developed a plan to address that gap. The Kings have agreed to make annual lease payments to the city that will start at $6.5 million and climb to at least $18 million by the time the bonds are paid off in 36 years.
A previous plan to address the loss of parking revenue would have backfilled the money through a mix of arena profits, ticket surcharge revenue and other sources. City officials said the revised plan is safer and simpler.
The city has also decided to back away from creating a nonprofit to borrow the money and will instead issue the bonds directly.
“We think we have a solid and responsible long-term financing plan,” city Treasurer Russ Fehr said.
Critics of the city’s financing plan have already begun to raise concerns about the repayment plan for the bonds. Fehr estimated the city would pay back the debt at a 6.7 percent interest rate – roughly 1 percentage point higher than what city officials thought they would pay when a tentative financing plan was developed last year.
The increase in the interest rate is a result of rising rates nationally and because the city won’t be able to use tax-exempt borrowing due to the increased contribution to the project by the Kings. Fehr said that extra contribution from the Kings will more than offset the higher interest rate.
Craig Powell, president of the local watchdog group Eye on Sacramento, said in an email that “it is obvious that the investment market considers the proposed arena bonds to be high-risk investments.”