SHOULD THE CITY INVEST IN THE SODO ARENA?



City of Seattle Seal

The City Council is considering whether it should approve public financing to support the construction of a new arena south of Safeco Field.  It appears likely that constructing a new arena to bring an NBA basketball team to Seattle can be done without City participation.  The land is zoned to permit its construction, and the developer has purchased that land and lined up several very wealthy investors.

The question before the Council is not whether we think having an NBA team is a good thing, but whether it is necessary and appropriate to use Seattle’s bonding capacity to invest public money (in the form of municipal bonds) for a new arena.  After reviewing the proposed agreement, I have serious concerns about the proposed City involvement.

Eight Councilmembers share many of my concerns, and sent a letter to Chris Hansen [PDF] on July 30 stating:  “Our review has led the majority of Councilmembers to conclude that the agreements do not represent an appropriate balance of public and private benefits, nor do they sufficiently protect the City from the financial risks inherent in the arena’s financing.”  We then laid out a series of issues that would need to be addressed or changed in order for the Council to be prepared to consider City investment.

It may be possible to craft an agreement to move forward that meets all or most Councilmembers’ concerns, but that will take considerable discussion and negotiation.  We expect to work on this over the next few weeks.  All of us would welcome investment in the City and a new basketball team, and are willing to look carefully at these proposals.  However, any agreement must be designed to protect and advance the public interest.

Reasonable people can disagree on what the public interest is.  Councilmembers have a range of opinions on what an acceptable agreement would be, and I am writing to explain my point of view.  I appreciate that not everyone will share my perspective.  Here are my concerns:

1.      This is a different financing structure from that used for Safeco and CenturyLink Fields.  Those financing plans were put in place many years ago, of course, when there were more public dollars available and research on the limited economic benefits of stadia was only just beginning.  In both of those cases, funding came from specific taxes authorized by the legislature (in the case of CenturyLink, it was also approved by voters).  These taxes had less impact on the City’s general fund, which receives taxes from the teams and operations (admissions taxes were used, over the City’s protest, as were some CenturyLink sales taxes).

This proposal takes all of the city taxes which would otherwise go to the general fund to support police, fire, human services, parks, and transportation investments.  The approximately $13 million anticipated to be generated annually could, for example, largely restore funding for the City’s parks system to its pre-recession levels.  Instead, these taxes are diverted to pay the debt on the arena.

Every other business in town pays those taxes.  We make investments in transportation, public safety, and other priorities in order to make the entire community work – and to benefit economic development.  But we don’t put those funds back into any other business as a public investment.  It would make more sense if the proposed public funding had specific new taxes to support it, or if it relied on taxes that most businesses do not pay, such as the admissions tax.  I fear that the precedent of giving up taxes that would support general fund activities sets a precedent that we will rue in the future.

If arena proponents want public funding, they could go to the legislature and propose specific taxes, and take those to the ballot if necessary.  Note that (contrary to public mythology), voters in Seattle actually voted for Safeco Field.  The baseball field lost in other areas of King County.  The football stadium was approved in a statewide vote.

2.      I am not convinced that the proposed arena will make a significant contribution to economic development.  It will bring some new money into Seattle and will divert some other money that people might have spent on other activities.  The economists who have studied this proposal agree (as do studies of every other such project) that the net effect is very small.  Furthermore, I have not been persuaded by the argument that there will be significant tax revenues generated by “ancillary” economic activity in the stadium district following construction of the arena.  The evidence is slim or hypothetical.

3.      As the Seattle Planning Commission said in their report, the proposed arena may cause economic problems by interfering with Port and other industrial jobs.  The Manufacturing Industrial Council and Port have raised legitimate questions about the impact of the arena on transportation and land use in the area.  We will not know how significant these are until there has been a full study when the project goes through environmental review.  I think that there are likely to be impacts, but I also think that these impacts probably can be mitigated.  There will need to be money invested in this mitigation, but the good news is that addressing transportation impacts from the arena will also likely help with other transportation problems.  Under those circumstances, I would support investing public funds for part of these transportation projects.

4.      The investment in this project is fundamentally different from what are cited as comparable investments in places like McCaw and Benaroya Halls.  There is no need to get into the discussion of the relative merits of arts and sports.  The fact is that the arts facilities that the City invests in host nonprofit organizations.  No one is making money off of them – unlike the investors in this proposal.  The McCaw family invested tens of millions of dollars into the renovation of McCaw Hall.  They get no financial return – they get their name on a plaque.

5.      In contrast, Mr. Hansen said no when I asked him if he would organize the proposal as a nonprofit.  In fact, he specifically stated that he is looking for public funds to make him richer.  In his blog response to the question of why he wanted public financing, he put it quite explicitly:

“Public support improves the economics of the project: The first reason why a public contribution is necessary to the Arena project is that it meaningfully improves the economics of the project… the City and County Councils must appreciate that there is a significant difference between operating profitably and earning an adequate return on our investment.” (emphasis in the original)

Mr. Hansen has since stated that he believes that the City will receive a 7.15% annual return on investment.  While City analysts are skeptical about this number, he must believe it to be true.  That suggests that he believes that he is entitled to a significantly larger rate of return, or else he would be willing to replace the public funds at this rate.

6.      The proposed arena is designed to accommodate both basketball and hockey, but the memorandum of agreement provides that there will be only $120 million in public funds used if there is only a basketball team, instead of the $200 million if both teams are secured.  When I asked Mr. Hansen what the difference would be in the arena if a hockey team had not been secured, however, he stated that he would build it the same way.  That suggests that at least $80 million of the proposed public investment is unnecessary, since he can evidently finance the arena without it.  He has never presented a financial plan that lays out what level of public investment he actually needs to make the finances work.

7.      There are questions about the security of City investment in this arena, identified by Council staff and expert consultants.  There are many good policy statements in the MOU, but there are serious questions as to how they will actually be implemented.  For example, the City is listed as having ‘first priority’ for revenues – but that is very different from having ‘first lien’, which entitles the holder to actually be first in line if there is a financial meltdown.  We are told that the banks will have ‘first lien’.  And there is no apparent guarantee from the investors that their personal money would back up the City’s investment if the worst case happened, even though the investors listed have quite large financial resources.  It is not clear why the City should take any such risks, even if the chances of problems are relatively small.

8.      Owning the arena at the end of thirty years does not make up for the possible risk and commitment of City tax revenues.  The City already owns KeyArena, which struggles financially – why would we want to own two?  And no one can guarantee that a ‘state of the art arena’ built now will not be deemed insufficient in 15 years – remember that KeyArena was renovated in 1994, and the Sonics signed a 25 year lease, which they chose to break after only 13 years.  The City thought it was fully protected in that lease, but it turned out to be breakable.  Why will not the same situation occur with this arena?  The Rose Garden, with Paul Allen owning the team, and surely having the financial assets to handle the issues there, still went bankrupt.

The fact is that running arenas is not the City’s core mission.  We have challenges enough with police, human services, electricity, water, and the other areas that are our central responsibilities.

9.      In San Francisco, the Golden State Warriors are building an arena using only private funds.  The City is providing the land – but the land is more of a liability than an asset, requiring an estimated $75 – $100 million to make the piers usable.  If private money can build an arena in one of the most expensive cities in the country, why not in Seattle?

The City can welcome investors building a new arena and we can play our traditional economic development role by supporting that with complementary investment in city infrastructure such as transportation systems, and with regulatory assistance where that is compatible with the public interest.  The investors could finance and own the facility, just like every other for-profit business.  Alternatively, the investors could go to the legislature, get the legislature to approve a new taxing authority, and set up a public facility district to manage the arena.  Both of these are proven models that can work.  The current proposal is a complicated and convoluted arrangement that subsidizes profits for a private investor, takes away tax revenue that should go to the City’s general fund, and leaves the City with a potentially money-losing facility down the road.

I’ve heard from lots of basketball fans and I appreciate their passion.  I will continue to be open to possible changes in the agreement that would address the issues I have cited.  Ultimately, I must make my decision based on my best judgment of the public interest as I see it and as outlined above.

 

Comments

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Comment from dugie shannon
Time August 7, 2012 at 1:40 pm

i appreciate your thoughtful and well researched response on the issue a sports arena in the SODO neighborhood.Yes,please continue negotiotions & be open to possible changes,I am a passionate sports fan,I really miss the “Soups”Thanks for all your hard work..

Comment from Cori K
Time August 7, 2012 at 2:16 pm

NO. Of all the things I would like to see the city spend money and time on – this is at the bottom of the list.

Comment from Jerry
Time August 7, 2012 at 2:28 pm

The leadership you provide has turned Seattle into a can’t do town. Well done! Bellevue will absolutely love what a new arena brings!

Comment from Joe
Time August 7, 2012 at 2:41 pm

You know what they say about lending money to friends and family ? Beyond “don’t do it” the advice to keep your sanity is to think of it as a gift that won’t be repaid.

Would many Sonics fans sit down and write a check for 30 years of basketball tickets up front ? Why should the city be cutting a check for 30 years of tax revenues on the unsecured Parent guarantees of a group without an NBA team ? Wouldn’t this MOU be a binding commitment even if the Bellevue NHL arena plan goes forward and Hansen thinks he can press on without ?

Comment from Scott
Time August 7, 2012 at 3:11 pm

Sorry if this is long……. but Mr. Conlin continues to be shortsighted and unreasonable, bordering on Lazy.

First of all your argument that “evidence is slim or hypothetical” that the area would grown economically, is your own personal opinion, clearly based on not doing enough research or having any facts. Not to mention completely false. You need look no further then Key Arena. Ask businesses in the Seattle Center area what effects the Sonics being in town, or large shows/concerts have. That area was once booming with tons of life. With respect to the WNBA, they are basically the only show that uses Key Arena anymore, and as popular as they are in Seattle, they do not cover the losses. Now imagine if they were gone.

That brings me to my next point. The idea that, because Key Arena is a dump, that the proposed Arena will be a dump at the end of it’s lease.

Once again you are showing a lack of common sense, or even simple researching skills on this one, which I must say is sad coming from a city leader. To compare the deal involving Key Arena and the proposed Arena in this is ludicrous. Did the Key Arena deal have anything in writing that said the tenant would be required to pay money to make any upgrades/improvements/renovations throughout the lease? No.

Honestly, majority of the bogus claims made throughout your statement embarrasses me. Having read opinionated blabber proposed as facts, from a City Leader, no less is incredibly frustrating.

I particularly get wound up by the constant whiny claims that these “Evil Rich Folk” should be able to build US a new playground. Yeah, I agree they could probably afford it. But it is insane to think that Private Investors should supply the Government with such an amazing addition to their city, which will undoubtedly provide incredible economic value, for absolutely no investment on the local governments end. Good luck partnering with any more “Evil Rich Folk” in the future with that kind of plan. Next time the City comes calling, they might no be so generous.

And lastly, Mr. Conlin. Perhaps if government employees such as yourself were not so severely overpaid for being talking heads, perhaps we could save a little money. It may be little in comparison to the Arena, but then again what is the city gaining financially from overpaying so much for the likes of you?

Comment from James
Time August 7, 2012 at 3:28 pm

Wow, good luck getting re-elected Conlin!

Comment from Michael
Time August 7, 2012 at 3:49 pm

This article is about as close-minded, deceptive, politically driven, and misleading as you can possibly be. Get the deal done.

Comment from Todd
Time August 7, 2012 at 3:52 pm

Have fun trying to figure out a way to pay for Key Arena improvements when Hansen goes to Bellevue. Oh that’s right, you won’t be able to afford Key Arena improvements, the Storm will leave to a world class facility, and you will have an empty building you can’t do anything with because any and all events will go to Bellevue as well.

Comment from Erik
Time August 7, 2012 at 4:08 pm

Mr. Conlin your arrogance and lack of common sense is shocking. We have local investors willing to invest over one billion dollars into Seattle (300 million plus for the arena and probably 500 million for an NBA team plus who knows how much for NHL), and you are going to reject them based on some pipe dream collecting taxes that wouldn’t even exist if it weren’t for the investors? Does Mr. Hanson and the investors not deserve to have some reasonable chance of making a profit while putting their butts and money on the line by taking on all of the risk for something that will bring the whole community together? Reject this and watch all of the money flow to Bellevue. Heck maybe all of your traffic problems will go away as well as other businesses avoid trying to get anything done in Seattle due to people such as yourself.

Comment from Frelimo
Time August 7, 2012 at 4:17 pm

The city of Seattle gave the Sonics away with a settlement, they did not break the lease.

You are not deserving of your position if you think the city should make ZERO investment in this arena. You mention ONE arena in the whole nation that is built without public investment. You are downplaying the value of the land that was given up in Sacramento. I guarantee that the land is more valuable than the SoDo land the city would buy from Chris Hansen for the arena. It’s the same thing the city is providing the land.

Hopefully your career ends real soon so the city can start advancing. It takes money to make money and the city of Seattle does not deserve those taxes generated by the new arena after giving the Sonics away. If the arena is built in Bellevue your general fund still gets nothing.

Comment from Frelimo
Time August 7, 2012 at 4:18 pm

*San Francisco

Comment from Geoff Taylor
Time August 7, 2012 at 4:19 pm

Politicians in Seattle like to think of this city as liberal and progressive. But in reality they act incredibly conservative. If something requires public money, the city wants nothing to do with. Things that give us civic pride and a sense of community are the back bone of making a city great. But thats not worth our time and effort, Mr. Conlin?

I’ve seen the comparision with S.F. and the golden state warriors before. Conlin, the Seattle times and others say that the land being “donated” by the city is a liability and has no value, that S.F. is not helping financially in anyway. Well thats totally false. It’s waterfront property in the bay area. Thats prime real estate that would be a high prize for any private developer. Can you imagine the value of our waterfront piers if a private developer were able to buy one and convert it to condos and restaurants? They are providing financial support by saving the hunreds of millions the golden state warriors would need to buy that land. Mr Hansen already bought his land, so he’s askign for help in other ways. This is an amazing deal and Mr Conlin has no right to block this proposal. And he has no right representing people of this city.

Comment from Jake
Time August 7, 2012 at 4:22 pm

Disagree Richard. You clearly dont get it and will be voting NO for Richard in the next election. I want forward thinking and progressive council members.

You are simply a puppet of the Big Unions at the Port of Seattle.

Shame on you. This entire response is pathetic and without merit.

Comment from Justin
Time August 7, 2012 at 4:28 pm

I am totally fed up with this ignorant mess of a City Council.

Are you kidding me Richard? WTF are you talking about?

Land in ANY city is an asset. Liability? Really? I know the land under my house is worth $, and will never be zero, or negative.

So, the land in the city of Seattle which is land locked and has nowhere to grow but south is suddenly a liability…

This absolutely joke of a comment is exactly why we need to vote this man right out of office. He is taking facts and actually making fiction.

This is an unbelievable response from a leader in our city. I didnt vote for this nonsense, and surely will not when the time comes.

See ya Richard, you BUM!

Comment from Drew
Time August 7, 2012 at 5:11 pm

I wouldn’t vote for Conlin if he was running unopposed. I’d run against him. What a short sighted, ignorant page of lies.

Comment from Matt
Time August 7, 2012 at 5:11 pm

Mr. Conlin’s refusal to even skim the surface of the cultural relevance debate around arts/sports speaks volumes of his opinion on this.

Comment from Mac
Time August 7, 2012 at 6:35 pm

Mr. Conlin, weren’t you a member of the city council when the Sonics left? The city allowed the sonics out of their lease, so for you to say the lease didn’t hold up is false. The courts never ruled on whether or not the lease could be broken. The city leaders choked on the potential of an unfavorable ruling. For you to continue to insult the intelligence of your constituents with false statements is truly sad. I hope for our city that this is your last term in office.

Comment from JB
Time August 7, 2012 at 7:06 pm

I am ok with Mr. Conlin being against the Arena proposal but it is disappointing to see him use incorrect information to appear that he is protecting the cities best interest. If you are against sports, and any kind of public financing of an arena that is ok.

1) There are no details released on the San Francisco arena plans which is undoubtedly going to have land swaps and TIFs. There are no details..that is a fact.
2) Common economic studies of stadium impacts are largely built on studies of stadiums of the 60s through the 80s when arenas had big moats in the boondocks. Look at AT&T park, LA Live, Excel Energy center and several others if you want to see the impacts. Or talk to Hotel workers, Restaurant workers, and retail salesman downtown to understand the impact of out of towners on their business.
3) The league would not allow non-profit and Mr. Hansen is structuring the deal this way to make it sustainable and help it thrive in the community for years to come. He will be at a disadvantage for funding such a huge portion of the arena on his own compared to his peers.He is just trying to make this work with the strong financial restrictions I-91 enforces.

fan of I-91,
JB

Comment from Bill
Time August 7, 2012 at 8:00 pm

So, you vote in favor of loaning wealthy private investors $73m to build a parking garage for a downtown shopping mall, but you call this investment convoluted? Why don’t you admit that you oppose this because McGinn supports it and you are running for mayor. Intellectual honesty is good for the soul.

Comment from Brett
Time August 7, 2012 at 8:45 pm

Mr. Conlin, as an elected official I would expect you to get the basic facts straight. The Sonics signed a 15 year lease (not 25 as you claim). One of the fundamental flaws of the Key Arena remodel is the lease did not match the terms of the bonds, which were for 20 years. This new deal would have the lease match the terms of the bonds with the added benefit if unprecedented taxpayer protections. Your close minded-ness on this issue is unbecoming of a leader.

Don’t pretend to state you are open to this proposal. You have never been open to it. If you are going to oppose it, however, get your facts straight. You were on the Council when they voted to let the Sonics out of their lease, I would expect you to know what the terms were!

Comment from Bryce Mcqueen
Time August 7, 2012 at 9:12 pm

While i totally disagree with what your saying i can at least see you put some time into your argument. Im for this and think its a good thing for the city of Seattle. I don’t live in Seattle but i have season tickets to the Seahawks. When they play i come to Seattle and spend money. I do not come to Seattle for anything else. But i would come for basketball.Im just one man and his family for what its worth. Thanx for your time.

Comment from John
Time August 7, 2012 at 9:46 pm

Your arguments a weak and baseless. Which minion wrote this drivel?
So you hate creating jobs? Interesting. ‘Thousands of skilled “family-wage” workers would work for over 18 months on this project. Hundreds of people will maintain it, work at it, protect it over the course of its life. Yet here you are saying none of that matters.
Your telling them to raise taxes? You’re for raising taxes on everyone. Wow.
I’ll remember this when you run for mayor, because lets not pretend your weak arguments will be forgotten.

Comment from Mike H
Time August 8, 2012 at 3:01 pm

Keep up your due diligence on the proposed arena and I thank you for good work that you are doing on behalf of the City of Seattle and those who live and work in the SODA area. Ignore the haters and Sonic “passion”.

Comment from Kurt
Time August 8, 2012 at 8:44 pm

Mr. Hansen is GIVING the city $300M. This deal is as good as it gets. If you don’t vote for this, no one will vote for you. Ask Greg Nickels if he wishes he would have done things differently when he had a job in 2008.

Comment from Ted Sindell
Time August 9, 2012 at 6:31 am

This is a project the residents of Seattle want to move forward with. You are out of touch and that will be remembered in November.

Comment from bmoney
Time August 9, 2012 at 12:41 pm

Thank you Mr. Conlin! We do not need an arena, let alone wasting city money on it. It will destroy SoDo with no worthwhile benefit. Send them to Bellevue, please.

Comment from Mariana Quarnstrom
Time August 9, 2012 at 2:45 pm

this is catering to the rich, most families will be unable to afford a ticket, but yet they are expected to subsidize it. Let’s pay off what we owe- the Kingdome that no longer exists, but we are paying on $200,000,000.00 and Mariner’s stadium that was voted down by voters, but we are just not knowledgeable to make the decision. Enough!
Are living wage Port of Seattle jobs are move valuable that a very expensive sports team that will quickly demand further improvements- No on the arena-thank you for being a source of reason.

Comment from Bruce
Time August 9, 2012 at 5:55 pm

Yes, send them to Bellevue. Seattle doesn’t need to fund any more stadiums.

Comment from Jim
Time August 9, 2012 at 9:28 pm

So, to paraphrase the points made:
1) Raising everyone’s taxes is preferable to letting one business off the hook for taxes that wouldn’t have existed without the arena. Out of principle, the city must have its hands in everyone’s pockets.
2) The projected increase in revenue for the city wouldn’t be “significant”. The city wants MORE money.
3) There may or may not be an impact to the port as a result of this arena – no evidence has been produced to suggest it will. But we’ll use the Port’s concerns as leverage to bilk money out of Hansen’s group to pay for infrastructure we promised years ago.
4) The investment in McCaw Hall and Benaroya Hall is OK, because they don’t make any money for themselves or the city. The city only invests money in ventures that don’t produce a profit (kind of flies in the face of points 1-3).
5) I asked a business owner to forgo any profit … and he said no! (what nerve!) I want a bigger cut – even though I’m putting in less money and have substantially less risk in the deal.
6) If two teams are secured, more public funding is called for in the MOU – but the arena is the same either way! Gotcha! (I think the asking price for the Phoenix Coyotes is $170 mil).
7) The arena deal, heralded by experts as being unprecedented in its providing of backstops to provide protection to the city and said to be of very minimal risk, is not a safe enough. We can only accept no risk proposals (way to be progressive!)
8) Our 50 year old arena is broken. The same will happen to the proposed arena after 30 years. Just look at that worthless money-sucking Tacoma dome!
9) SF giving up waterfront property in “one of the most expensive cities in the country” doesn’t count as contributing. One arena was built with mostly private and some public contribution! Why can’t this one! (..hey, wait a minute …)

Comment from Your Daddy
Time August 10, 2012 at 10:56 pm

he coaches his sons soccer team so he knows about all the benefits of having pro sports

Comment from Debra
Time August 21, 2012 at 10:31 am

Thank you for being the voice of reason. Is there any reason the 99% should fund a business venture by a 1%. A hedge manager from out of state looking for his ROI! We have five sports teams (including UW) and four arenas/stadiums. Enough is enough. Let’s spend public money for public projects and let private investors take the risks and returns without public backing.

Comment from sustainable investments
Time August 21, 2012 at 12:09 pm

Cheers author for your great post about SHOULD THE CITY..