June 18, 9:00 AM click here to comment > 37
Correcting Seattle Times misconceptions regarding the proposed arena
Last week Bruce Ramsey and Kate Riley, both editorial board members of the Seattle Times, went on the Brock and Salk radio show at different times to defend and explain the editorial coverage their paper has been giving to the proposed new Sonics arena. I listened to these broadcasts and was surprised and dismayed to hear how little they knew about or understood the actual proposal. The Times has a basic responsibility to get their facts straight – even if those facts don’t help them advance their particular view of reality. It frustrated me enough that I wrote down a point by point correction.
The first instance was last Monday, June 11, when Kate Riley, editorial page editor for the Times, noted that Seattle taxpayers do not want to be ‘on the hook’ for the cost of the proposed arena and wonders how the money will be paid back. She went on to cite the budget challenges faced by the City of Seattle and King County as evidence that this is a risky deal. Riley’s statements fail to capture the fundamentals of the proposed arena deal and the separate fundamentals of the budget problems facing Seattle and King County over the past four years.
On the arena proposal, there are three defined sources of revenue that guarantee that the costs of the bonds are covered by arena-generated revenues and the investor:
- A guaranteed based rent paid to the City and the County by the investor
- New incremental tax revenue generated by the arena project that would not be available to either the City or the County were it not for the arena being built
- If the revenues from the two previous sources are not enough to cover the cost of repaying the bonds, the investor is obligated to pay an additional rent payment to make up the difference
The City and County are further protected by guarantees built into the Memorandum of Understanding:
- A non-relocation agreement with the teams
- A requirement that the investor fund a reserve
- A guarantee that the City and County are paid first from arena revenues – ahead of other arena lenders and investors
- The ownership group of the NBA team would guarantee the annual payments to the City and County
- In the extreme case of default that requires the ownership group to sell the team, the City and County have first right to the proceeds of the sale of the team after obligations to the NBA are satisfied
- The City and County would own the land and the property under the terms of the MOU.
- The City and County are protected by the requirement that the investor is responsible for all maintenance and operational costs of the arena, including a requirement to fund a major maintenance and capital investment fund to ensure that the facility’s long-term capital investment needs are met.
These guarantees were not part of previous agreements with other teams and facilities in our city, agreements supported by the Seattle Times editorial board. This deal is unique in providing more long-term protections to the City.
All of these guarantees will mean that the City and County General Funds will not be ‘on the hook’ for the costs of the arena. As for the budget challenges faced by the City and County over the past four years, what Riley describes as “the revenues expected that didn’t materialize,” that is a fundamentally different problem. To draw parallels between the two is misleading. The budget challenges faced by the City and County are the result of the longest, deepest recession since the Great Depression. As the economy faltered, revenues dependent on the health of the economy– such as sales tax and business and occupation tax – declined. As we continue into the very weak recovery from the Great Recession, these same revenues are now growing, but they are growing at a very slow pace – a pace that is not sufficient to maintain existing services.
To use the City and County’s General Fund budget challenges as an example of why the arena proposal could ‘leave tax payers on the hook’ is flawed. Under the arena proposal, the investors are responsible for any gap left after base rent and revenues are counted. Unfortunately, the City and the County do not have a similar investor to turn to when General Fund revenues falter. It is because of this that the City and County have had to make budget cuts.
Riley also made the claim on Brock and Salk that the City is still paying off Key Arena even after the departure of the Sonics. This is not true. The Sonics’ departure resulted in payments sufficient to retire the outstanding debt on Key Arena. The Sonics also did not have a non-relocation agreement at that time. Under the current proposal, there would be a binding non-relocation agreement.
In addition to Riley’s comments on the Brock and Salk show, the Seattle Times editorial dated Saturday, June 9, 2012, cites a possibility raised by some that the City and County will purchase the property for $100 million when Mr. Hansen paid a different lower amount. Bruce Ramsey of the Seattle Times also made a similar claim in an editorial conversation on the Times website dated Wednesday, June 13, 2012, and repeated it on the Brock and Salk show later that day.
The Seattle Times editorial writers aren’t getting this one right either. The City will only pay what an independent third-party appraiser says the land is worth. That price is capped at $100 million, but if it is appraised at a lower value, that is what we will pay. That payment goes to the operations and maintenance of the arena, not to Chris Hansen or any other private investor. That payment will be repaid to the City by the arena and its investors, with interest.
Ramsey also acknowledged he had not yet read any of the arena agreement documents, but pledged to do so. I’m glad he has made this commitment and I invite others to review the documents themselves at http://www.seattle.gov/arena.
As Mayor McGinn’s Budget Director, I am not in a position to put the City’s financial health or our General Fund at risk. Since I began working here in 2010, I have been able to advise the mayor on how to close budget shortfalls and ensure that our budgets are in balance. I would not sign off on any deal that would impair our City’s finances or our ability to fund our public services. I’ve given this proposal very close scrutiny and due to the protections included in the agreement, I believe it is worth supporting. It will serve as an important investment in our City while protecting taxpayers and the programs that depend on our General Fund.
Posted by: Beth Goldberg