Marcos Bretón

Sacramento suit against the arena is taking money from your wallet

Construction crews work on the Sacramento Kings arena project earlier this year.
Construction crews work on the Sacramento Kings arena project earlier this year. pkitagaki@sacbee.com

For months, high-ranking Sacramento officials have been frustrated by the last remaining lawsuit blocking completion of the downtown arena.

Headed to trial on June 22, the lawsuit purports to be about saving taxpayers money – but it may actually cost city taxpayers as much as $80 million.

Filed two years ago, the suit alleges fraud in the way the arena was financed, and was brought by Sacramento residents Isaac Gonzalez, James Cathcart and Julian Camacho.

As The Bee’s Dale Kasler and Ryan Lillis wrote recently: “(The lawsuit) says the city’s contribution (to the arena) represents ‘a fraud on the public’ and a ‘waste of public funds.’ It says the city is giving the Kings a ‘secret subsidy’ worth tens of millions of dollars, making the total contribution, which includes several land parcels and other assets, worth far more than the officially stated $255 million.”

The fear among city officials has been that while this lawsuit dragged on, the city couldn’t issue bonds to pay for its share of the arena. If interest rates rise by 1 percent this summer, as some economists predict, it could increase the city’s debt load. That would mean Sacramento taxpayers would have to pay about $80 million extra in finance chargers over the 30 years to pay off the notes.

Sacramento City Treasurer Russ Fehr said Friday that delays are already preventing the city from saving millions of dollars in estimated arena costs.

“We have an opportunity right now to lock in this deal and sell the bonds at an interest rate that could cost the city millions less than the (financing) model we presented to the City Council last May,” Fehr said.

If he could take bonds to market now, Fehr said the city’s annual debt service could be cut from an estimated $22 million a year to between $17 million and $18 million.

With millions of dollars at stake – and no serious chance of stopping an arena already sprouting steel beams at the old Downtown Plaza site – some in the community have suggested a settlement of some kind.

Mind you: It’s not the Kings – the primary tenants of the arena – who would pay these guys to go away.

It would be Sacramento.

But perhaps a few million bucks of extortion for persistent litigants would be far less painful to Sacramento than paying an extra $80 million?

No way.

The city should call the bluff and go to trial.

This is about much more than just money.

Along with others, the plaintiffs in the fraud suit have been fighting the arena and losing for years. They say they are about democracy, but actually they are only about democracy they agree with.

These are the same people who last year joined the opposition to a change in the city charter that would have granted Mayor Kevin Johnson more authority if voters approved.

One argument against shifting budget and administrative power from the city manager to KJ was that the city charter – the rules that govern Sacramento – worked just fine and didn’t need to be changed.

But in pursuing a fraud suit against the city, the plaintiffs want to toss aside the city charter because they oppose the arena.

Patrick Soluri and Jeffrey Anderson – the lawyers for the trio suing the city – have said they want nothing less than to lower substantially the city investment in the arena that was approved by a majority of the City Council.

The city charter of Sacramento states that only the council has the authority to set economic and land-use policy. That right was upheld in court last year. Superior Court Judge Timothy Frawley – the same judge hearing the fraud suit – ruled that a ballot measure seeking to put arena financing to a vote would have violated the city charter because it sought “to restrict the City Council’s future power to manage its financial affairs.”

The plaintiffs in this fraud suit were the same people leading the effort to invalidate council approval of the arena financing by pushing it to a public vote that was blocked by Frawley’s ruling.

Maybe they calculated they had leverage against the city in the fraud suit because city leaders fretted about rising interest rates.

But in the last few weeks, whatever leverage they had has been called into question.

Just days ago, Fortune magazine published the minutes of a meeting among members of the Federal Reserve, some of whom suddenly aren’t so sure the economy needs an interest rate hike. Some members of the Fed want to push an interest rate hike back to September or even into 2016.

If there is no interest rate hike anytime soon, and the fraud trial is expected to take only two weeks, the threat hanging over city taxpayers is neutralized.

Even if the plaintiffs prevail on some point or another at trial, they won’t stop the arena. Perhaps some language in the deal would have to be amended and would require another city vote.

And if the city prevails and the litigants appeal, the city feels confident it will be able to sell the bonds despite the appeal. To persuade bankers to proceed, officials would secure legal opinions stating that overturning the ruling on appeal is highly unlikely.

There is still a solid majority on the council in favor of the arena.

Perhaps the judge would kick Soluri and Anderson a generous helping of legal fees after the trial – the incentive for them to keep at this.

But the fact will remain that if they get any money, it won’t come from the Kings. It will come from the city.

Or maybe Soluri and Anderson lose and get nothing for all the hours they’ve put in over two years. The plaintiffs could also lose and be scolded by Frawley for bringing a suit with no merit.

If these guys really want to go to court, the city should oblige because fighting them sends a message to investors in the downtown that obstructionists won’t stop Sacramento.

Even though it won’t be completed until next year, the downtown arena has already spurred massive investment in the downtown area, as long dormant buildings were bought by investors eager to develop near the new hub of Sacramento.

In the last 18 months, since it became clear the arena would be a reality, 10 buildings have been sold in the downtown core, according to the Downtown Partnership.

Another 18 buildings are either for sale or in the process of being sold.

Those against the arena take a dim view of this progress. They are locked into being opponents to change in Sacramento through this lawsuit and other failed efforts, even if the change in Sacramento is positive and exciting.

What if that opposition ends up costing Sacramento taxpayers millions of dollars? Then we can all thank Patrick Soluri, Jeffrey Anderson, James Cathcart, Julian Camacho and Isaac Gonzalez.

They could carry that distinction around for the rest of their lives.

Call The Bee’s Marcos Breton, (916) 321-1096.

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