HOW YOUR PROPERTY TAXES WILL PAY FOR THE NEW ARENA



City of Seattle Seal

Seattle property owners will actually fund about $15 million of the City’s proposed $120 million investment in the proposed basketball/hockey arena to be developed south of Safeco Field, even though publicity for the project has suggested that repayment of this investment will come entirely from revenues associated with the arena, not taxpayers, and, further, that this investment will be risk-free for taxpayers.  As the Council is finally given the information that will allow us to make a reasoned judgment on the viability of this proposal, details are beginning to emerge about the actual agreement, and some of those details do not quite live up to the hype.

The agreement between Mr. Hansen and the governmental participants is complex, with lots of moving parts and highly specific arrangements.  One of those details transfers some of the funding responsibility to Seattle property owners.  It’s an arcane arrangement specifically tailored to the unique way in which property taxes are assessed in Washington.  It’s also a challenge to explain, but here’s the basic story.

Unlike almost every other state, in Washington local governments do not actually set a property tax rate.  Instead, cities levy a total dollar amount of taxes to be collected, and the County Assessor translates that into a rate that will collect that much money.  The amount of money to be collected can only increase by 1% per year without voter approval, which means that property taxes are generally pretty stable, with only small increases or decreases as property values fluctuate with the economy.

There is one exception:  new development.  This is assessed at the same rate as other property, and then is added to the base for the following year.  In practice, this means that actual property tax collections increase by 2% or 3% each year, rather than the 1% allowed, but since the additional amounts are paid by the owners of the new development, this does not increase the tax bill for the rest of the property owners beyond 1%, so normally new development and this extra revenue collection does not affect your property taxes.

But the arena deal is structured so that it will.  Here’s how:

  • Hansen’s company will build the new arena as a private development, so when it is completed, the approximate $400 million value of the new building (the value of the land underneath the building is not included in this) will be added to the tax rolls, leading to about $1 million in additional property tax revenues to the City the first year that the new facility is in operation.
  • But then the agreement provides that the City will take possession of the arena after a year or so.  Once the City becomes the owner, no property taxes will be assessed on the arena, because public property is exempt from property taxes.
  • The catch is that since the arena was on the tax rolls for a year, its value gets rolled into the next year’s property tax base.  So the $1 million or so in taxes that the arena would have owed each year from then on gets paid by every other taxpayer.  The $1 million per year will be used to pay off $15 million of the City’s funding for the arena, but even after the loan is paid off, taxpayers will pay this much more per year — forever.
  • If the arena remained private property, the taxes paid by the arena would go to the City’s general fund to support police, fire, human services, and other City programs.

Is this an accident, a mere quirk of the deal?  No, the City’s financial analysts explained to me that it is deliberately structured in this way to allow the City to sell about $15 million of the bonds with the very secure backing of a guaranteed property tax revenue stream.  And then to ensure that these property taxes are not paid by the team owners.

It’s a small amount – no more than a few dollars per year for even the owners of the most valuable property.  But it disturbs me, and it emphasizes how important it is to look this ‘gift horse’ in the mouth, and thoroughly check all of the provisions of the agreement before signing off on it.

Comments

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Comment from Matt
Time June 6, 2012 at 4:16 pm

Thank you for breaking this down. I could understand it being disturbing finding, BUT, those few dollars per year can equal jobs, increased tax revenue for the city AND a continued improvement of the SoDo area. Currently during the winter months, it’s a dead area of the city…Concerts, special events, the NBA and NHL will keep the area thriving year round.

As a property owner in the city of Seattle, I can say I would gladly contribute a few dollars to take advantage of this deal. The area is in need of world class venue like this–and not just for sporting events. The arena will attract large conferences and such, this is bigger than sports.

Comment from Mike
Time June 7, 2012 at 10:36 am

Interesting explanation. However, every time I Google “Public Financing of Sports Facilities” I see lots of academic reports that say it’s a bad deal for the taxpayers. I congratulate the Municipal League Foundation for their insightful look at this issue. Remember: there’s no such thing as a free lunch & beware of Greeks bearing gifts.

Comment from Jason Miller
Time June 7, 2012 at 12:56 pm

I agree that the arena deal should be fully vetted to understand all the implications, such as the one you outlined above very well. However, I still believe that a new arena with the deal proposed by Mr. Hansen is in the best interest of the city and will not come around again. While the $1 million in property tax revenue would go to public services were the building to remain private – that’s not option being presented. I continue to support this deal, and unless something more onerous comes from the details of the agreement, I hope you will too.

Comment from Dee Peterson
Time June 7, 2012 at 12:59 pm

why would we buy it????!!!!!!!!!!!!!!!!!!!!!!!
this is crazy – being a Seattle native – and watching the Arena, the Kingdome, et.al.
Why would we do this? Just let Hansen own it – we don’t need a world class anything – we have tons of conference space – the Conference center, the Trade Center and all the other arenas.
Please do something intelligent and let him build it if he wants – but go away if we pay anything.
P.S. I love sports!

Comment from Gary B
Time June 7, 2012 at 4:59 pm

Richard Conlin is looking for anything to pull the wool over our eyes and make himself look like he found some conspiracy to trick the public. This deal will make Seattle more tax revenue and increase tourism during the winter months. Don’t Make Mountains out of mole hills Mr. Conlin. Two to three dollars a year? Really, this is what you want to hang your hat on after receiving the one of the best finical opportunity this City has seen. It’s common to anyone who pays property Tax that any public property that is purchased by the city involves a property tax increase to pay for it. We Seattleites are used to your Tax increases even in our down economy. So where were you Mr. Conlin when my property taxes increased while my home depreciates? Now you want to save me Two to three dollars a year. Thanks but no thanks, if you’re going to raise my taxes at least I can see where it’s going and can once again bring my son AKA (future tax payer) to a Sonics game. One last thing how is the Arena deal any different then what Parks and Rec did? http://www.seattleparksfoundation.org/TPL_EconomicBenefits.pdf
For example; Parks and Rec (The Economic Benefits of Seattle’s Park and Recreation System) “Two of the factors provide Seattle with direct income to the city’s treasury. The first is increased Property tax from the increase in value of residences that are close to parks. This came to nearly $15 million. The second consists of sales tax receipts from tourism spending by out-of-towners who came to Seattle primarily because of its parks. This value came to nearly $4.4 million. In addition to increased tax money, these same factors bolstered the collective wealth of Seattleites by more than $80 million in total property value and by more than $30 million in net income from tourist spending.”

Comment from Robin Wade Furniture
Time June 10, 2012 at 3:26 pm

Glad to see the property taxes going to good use!

Comment from Darcys
Time June 19, 2012 at 11:40 am

Thank you for explaining this. I’m curious about the “few dollars per year”. Is it a few dollars per year per thousand of our property value or a few dollars total. And a few dollars is what, maximum? I get hit with more and more taxes per year by a few dollars here for this and a few dollars here for that. Also do those few dollars include inevitable significant transportation improvements associated with a new arena in the SODO neighborhood. And what about the cost overlays which are a given!
I admit I am not in support paying a penny for an sports arena. In fact if I did want to attend a game there, which I don’t, I wouldn’t be able to justify the expense on my income.
So, to Gary B, who can afford to attend the games, take your precious son to a baseball game! I don’t want to pay any more for you and your son’s entertainment.

Comment from Roxane Jude
Time June 23, 2012 at 9:26 am

Never mind the taxes, how can you stop the madness called tearing down and rerouting the Alaska way Visduct causing huge huge traffic delays and rude pushy dangerous! Driving conditions already taking place in “SoDo” while trying to “pass thru” Seattle?. You can’t even say the “freeway” is better! Start thinking city council not everything is about money!

Comment from Christopher
Time June 26, 2012 at 2:42 pm

How could your Mr. Councilman (of whom I voted in) say NO to created jobs at a cost of $3/year per taxpayer?
IT IS A BOND THAT IS REPAID TO THE CITY WITH INTEREST!! And, the city gets an asset for BELOW COST! and WELL BELOW VALUE! INFACT; the city gets a World Class asset for BETTER THAN FREE!
Its JOBS, Its The Social and Community Impact that this arena would bring! $3 for our community to grow and improve AND its a GREAT investment for the city, $200 mil upfront and $200 mil + interest + assets back to the city! HOW IS THIS BAD??? I pay taxes and i support the arena AND I DO NOT SUPPORT YOUR VIEW ON THIS Mr. Conlin

Comment from Geoff Taylor
Time June 26, 2012 at 3:07 pm

What Mr. Conlin fails to explain is how little this adds to each home owner’s property tax. As of 2010 there were approx 280k households within the City of Seattle. To make up for the missing $1 million, each household would pay an extra $3.50 per year. A small price to pay for something that will have such a positive economic influence on our city. And ironically for Mr. Conlin.. the taxes on these new jobs, income, tourism, parking, etc.. will provide the city with much more than an additional $1 million in taxes each year.

Comment from Jerry
Time June 26, 2012 at 3:27 pm

Another perfect opportunity for the city of Seattle to “Step in it” and blow a golden opportunity. Good news is Bellevue is chomping at the bit to get this action. They will be a perfect backup plan and will be more than happy to enjoy the fruits of “Another Seattle Missed Opportunity”. The city that could get nothing done……

Comment from John Weedston
Time June 26, 2012 at 3:43 pm

Won’t that %15 million be generated through increased property values of surrounding business and B&O taxes from additional business coming into the area around the new stadium? I see you point but it is not complete, there are many other factors including new jobs whcih genrate more business which generates more tax base.

Comment from Mike
Time June 27, 2012 at 9:23 am

Funny that the headline at the top of this Blog is “Making it Work” and yet you are first to come out and reject the arena proposal. How about putting a little bit of effort into making it work first? Is the deal entirely risk free to tax payers? Probably not. Is it probably the best deal that any city could hope for to get private money to build an arena, bring two teams to the city so that there are year round attractions. YES. Look at Sacramento, they would kill to have the support of private invetstors that Seattle is getting here. Risk isn’t bad, it needs to be understood and minimized, but to kill a deal simply because it is not “risk free” is a great way for Seattle to wither as a city. The city subsidizes all sorts of things in order to make this a place that people want to live and visit, as long as the risks are minimized the requested support for the arena seems trivial compared to the number of people who will attend events there each year.

If the council and county go through with killing the deal, we may not get to vote on it but at least we’ll get to vote in 2013.

Comment from Tim
Time June 27, 2012 at 1:38 pm

I want to sincerely thank Councilmember Conlin for being brave enough to be a voice of reason on this issue. While everyone is rushing to jump aboard this plan without truly weighing the costs, Richard Conlin has the good sense to examine the proposal properly first.

Comment from Martin Dicker
Time June 28, 2012 at 2:09 pm

Thanks for the explanation of the public finance implications of the arena deal.

What is mysterious to me is why the billionaires and millionaires who want to build the arena need ANY public money at all. As far as I can tell, the only financial benefeciaries (aside from the millionaire players) of these type of deals are sports franchise owners, who always seem to find a greater fool to pay more money for the franchise than the previous owner. I would also imagine there are real estate income impacts to add to the area developers’ coffers. Meanwhile, it is unclear what the transportation improvement costs will be and who will cover these costs.

Numerous economic studies have indicated that sports facilities produce few operational full-time job and the few jobs that are produced tend to be low wage. It is clear from your analysis that this arena proposal does not aid the City’s financial situation. So why the public participation? So the arena developers can make more money?

In addition, I believe that a new arena planned San Francisco is going to be entirely financed by the private sector. So I say: go for it billionaires and millionaires, but leave my finances and that of the City out of the deal.

Comment from Michael Scott
Time July 1, 2012 at 8:51 pm

If you are against the arena just say so. In support the new arena. I don’t support your long winded explanation when you leave
out the payment in lieu of taxes as well
as the other admissions taxes that will be
far less than the $15 million spread over the life of the bond. What’s up with all the white people on the Council of a racially diverse community. My guess is if more people of color were on the Council we’d have more supporters like Bruce Harrell.

Comment from richard
Time July 18, 2012 at 9:58 pm

I fully support Mr Conlin’s position.Let the private sector build this arena.