No Fair Weather Fans

I have received a few more emails from councilmembers. Larry Gossett seems in favor of the proposal. That is exciting news. However, Sally Clark seems to be more sceptical or even against it. Nick Licata is somewhere in the middle, but likes the proposal more than previous proposals. Here are all three emails. Brush up on what your representatives are thinking and don’t forget about the town hall meeting tonight at 7:00 pm at North Seattle Community College. I think it is a great place to get educated on the proposal. There is also information in Gossett’s email about the public hearing on Thursday, July 19th. Please, go to sonicsarena.com for all the information on the proposal, if you can’t make either meeting.

Email from Larry Gossett:

Dear Benjamin,

I would like to thank-you for writing me about your position on the proposed new basketball arena. I want you to know that I am favorably disposed to voting for this arena deal. However, at this point the council is still critically reviewing all aspects of this project. Therefore, as Chair of the King County Council I must wait until the entire deal is fully vetted before I set a date for the final vote on this measure.

Please be aware that a public hearing sponsored by both the City and County Councils will be held regarding the arena at the Bertha Landes room in the Seattle City Hall, 600 Fourth Ave. on Thursday, July 19th at 5:30 pm and that your thoughts matter to me.

Larry Gossett, Chair

King County Council

District Two

Email from Nick Licata:

Thank you for writing me about the basketball and hockey arena proposed by the Mayor for the SODO district.

The Mayor has sent the Seattle City Council a memorandum of Understanding (MOU) for an arena in SODO, along with an Interlocal Agreement between Seattle and King County. Both the City and County Councils would need to approve the MOU for it to go in to effect.

The Seattle City Council and the King County Council will hold a joint public hearing on the proposed SODO arena at 5:30 p.m. on Thursday, July 19 in the Bertha Knight Landes Room on the first floor of Seattle City Hall, at 600 4th Avenue, between James and Cherry. Sign-up for the hearing begins at 5 p.m. The Council’s overallschedule can be viewed here.

In brief, the proposal calls for a $200 million public contribution for a $500 million arena, with a cap in public funding. $120 million of the bonds to fund the arena would come from the City of Seattle, and $80 million from King County; $300 million would come from investors. Taxes collected at the arena rent would be used to pay off the bonds over 30 years. An estimated $258 million in city taxes, with a net present value of $106 million, would be included. The investors could extend the lease for five years up to four times, making this a potentially 50-year agreement.

The Council is considering the proposal in the Government Performance and Finance Committee, and considering a list of issues released in May, which includes closely examining the agreement for clear financial responsibilities and obligations, transportation and freight mobility, the future of Key Arena, the provision of City services, and other issues.

Here’s my perspective and analysis. This proposal is better than previous arena proposals, with less public funding, no brand-new tax to pay for it, and a significant private sector contribution. Secondly, the intent of the proposal is to address Initiative 91, approved by 74% of Seattle voters in 2006, which requires a fair value return on any investment by Seattle taxpayers in facilities provided for professional sports organizations.

Third, I want to ensure city services are not affected. We must maintain services to those most in need, and cannot sacrifice them.  In addition, we must maintain our obligation to fund critical infrastructure. Seattle has a large volume of necessary construction projects, most notably the waterfront seawall, and limited bonding capacity. The seawall must be funded in the next few years, and will require approximately $300 million. I’ve asked city staff how this proposal would affect the City’s debt capacity, policies and construction needs.

The Council is receiving briefings on Initiative 91, and how best to calculate fair value. We must receive fair value in return for our investment, as set in Initiative 91.

Most previous arena and stadium proposals have generally focused on state funding. This proposal would rely on the use of City of Seattle credit and bonding capacity, so any potential risk would be borne by the City and its taxpayers, not the state. General obligation bonds are backed by the full faith and credit of the City of Seattle. We must determine what the appropriate level of risk is for a municipal government.

The MOU contains details that need to be fully understood. For example, one provision in the MOU would allow the investors to request that the City and County amend the terms of the MOU to facilitate financing for the private side of the deal. Presumably, this would take place after an NBA team was attained. Although the City and County could say no, this provision could result in a situation where the Council could either choose to amend the MOU and get a worse deal, or lose an already acquired team.

Under current federal tax law, a key tax benefit that accrues to NBA owners diminishes after 15 years; the “roster depreciation allowance” allows sports team owners to write off 100% of the team purchase price as a loss over 15 years. It’s therefore reasonable in considering the MOU to assume ownership may change over a 30-year time period.

I am continuing to closely scrutinize the proposal with other Councilmembers to reach a decision that can work fairly for the city, taxpayers, and the owners of any new franchise.

Videos of the meetings of the Government Performance and Finance Committee can be viewed here.

Sincerely,

Nick Licata

Email from Sally Clark:

Greetings,

Thank you for your email about the proposal to build a new sports arena to accommodate new NBA and NHL teams.  Sorry for the mass-email response, but I’ve received a quite a few emails on the topic (2,742 in the last two weeks alone). This is the fastest way to get a response back to everyone.

First, I appreciate the passion from people on both sides of this debate. To many of you — thanks for loving basketball, hockey, and the spirit of community. To the other many of you – thanks for pushing for careful scrutiny of public investment. Thanks especially to those of you who have taken a moment to research the proposal, consider what it means to use City debt capacity, and who realize – whether you support the proposal or not — scrutiny is exactly what you want.

Most of you know this, but for the few who may not, the basics: former Jet City resident Chris Hansen has purchased the SODO Stadium District land necessary and would buy (in partnership with Microsoft’s Steve Ballmer, Peter and Erik Nordstrom, and others) an NBA team when one becomes available (another group would need to purchase and move in a hockey team). Mr. Hansen and associates would chip in $290 million and the City and County would under-write arena construction with a total of $200 million via councilmanic bonds. That debt would be paid back over time via rent payments, taxes and fees “captured” from the site and arena operations (city property taxes, city business and occupation taxes, city lease excise taxes, city sales tax, and city admissions tax), and an extra infusion of cash from Hansen and friends in any year the base rent plus taxes and fees fall short of the bond repayment amount due. The team owners would operate the new arena and enjoy profits off the activities inside. The NBA team would have a no-relocate requirement for the 30-year term of the bonds. At the end of the 30 years, the city and county would own the land and the arena.

Since we (the people of Seattle) are being asked to go in on building the new arena to the tune of $120 million, we (the people jilted by a pro basketball team once before) need to be appropriately cautious and do our homework. That’s what we’re doing through the Council’s Government Performance & Finance Committee. You can see the schedule for review and the video for previous sessions here.

Mr. Hansen’s proposal appears well thought out and sensitive to Seattle’s past troubles with pro sports. In order for me to put the City’s full faith and credit on the line I need to understand a few things:

·         Why should the project include public debt? If it’s not just a safe investment, but mildly profitable, why not build the project with private dollars only?

·         How will we ensure that the city’s General Fund is shielded from responsibility for the arena debt?

·         How strong is the no-relocate clause? What’s our recourse if the team moves before the bonds are repaid?

·         Is SODO the best place for a new arena and what might a third venue in that area mean for Port-related and other industrial traffic?

·         How would use of our debt capacity for a new arena affect our debt limit? How might using City-issued debt for the arena affect our ability to debt-finance other major projects?

·         How do we account for impacts to Key Arena operations?

·         Are we a big enough market to support two more major teams? How does the size of our market affect projections for corporate suite sales, advertising and sponsorships?  All of these affect team business success and the ability of team ownership to fulfill debt payment back-up obligations.

·         Can we determine if the proposal satisfies voter-approved Initiative 91 that sets standards for public investment in pro sports ventures?

That last one proves harder than I thought to answer. The builders of I-91 couldn’t foresee every possible investment structure and, sure enough, the wording of the two primary sections of the initiative appear to conflict when it comes to judging this deal.

The path forward from here?  We have more work sessions as the review calendar shows and a public hearing with the King County Council scheduled for July 19 in City Hall. It’s likely the Council will vote in August.

Feel welcome to contact my office if you have further questions or for more information on meetings. Thanks again for weighing in.

Sincerely,

Sally

Sally J. Clark Seattle City Council