Does $200 million in fact come from the public?

If yes, why isn’t this number zero? This is America, folks.

Mr Ballmer’s wealth is reported to be about $14 billion. $200 million is 1/70 of $14 billion. If this project “can’t lose,” why doesn’t Mr Ballmer just write a check for $200 million and reap the rewards?

Budget Director Goldberg has stated several things in her recent blog post that I was – to use her words – “surprised and dismayed to hear how little she understands” of economics and taxation. (Again using her words) THE CITY “has a basic responsibility to get their facts straight. It frustrated me enough that I wrote down a point by point correction.”

Ms. Goldberg commented on the Times folks’ assertion that that Seattle taxpayers do not want to be ‘on the hook’ for the cost of the proposed arena and question how the money will be paid back. So do the Municipal League and others with a better understanding of economics and taxation.
Ms Goldberg makes several points that the Seattle Times, the Port of Seattle, we take issue with: (see links below from reputable sources who do understand economics and taxation)

1) “New” incremental tax revenues that “would not be available to either the City or the County were it not for the arena being built” that will be used to guarantee that the costs of the interest and principal payments required by the holders of the arena bonds
2) “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
3) The City and County are further protected by ‘guarantees’ built into the Memorandum of Understanding: A guarantee that the City and County are paid first from arena revenues – ahead of other arena lenders and investors.
4) The City and County would own the land and the property under the terms of the MOU.
5) Ms. Goldberg says that she “would not sign off on any deal that would impair our City’s finances or our ability to fund our public services”
First a few facts and some assumptions:
• An MOU – Memorandum of Understanding – is not a contract, it is just an agreement to negotiate about a particular issue. Contracts frequently turn out very differently because between the time the MOU is signed and the time a contract is signed – things can change. We are probably years from Mr. Hansen being able to buy a basketball team – so we are years from a final contract. Things will change.
• MOST of the people who will go to basketball games already live in the Seattle metro area. Some (less than 10%) of ticket and other sales may come from outside the Seattle area, but 10% would be generous.
• Basketball fans have not been saving all the money they used to spend on basketball, parking, concessions, restaurants, bars, etc. They took that spending and continued to spend it – they just spent it somewhere in the Seattle area other than Queen Ann or the Key.
• The bonds will be paid off with tax increment financing (TIF) (which means that sales taxes and other revenues paid as a part of ticket and concessions and parking at the new arena will be used to pay off the bonds)

Given those facts and assumptions, here’s the truth about the economics and tax implications of the deal:

Addressing Ms. Goldberg’s Pt. #1, above:

In assessing the economic impact of a venue like this, economists measure the net income that accrues to the area. NOT SPENDING, net income that STAYS here. Spending doesn’t count (Really, not kidding). The reason is that if basketball fans really have not been just saving their money for years, then the net income to the area (for the sake of simplicity, let’s say the Seattle metro area) will not really increase much at all. Spending from People who come from OUTSIDE the Seattle metro area WILL count. Existing spending that is just transferred from a restaurant in Bellevue to a restaurant in Seattle is not an economic gain to the area – it’s just a transfer. The economy would have gotten that money and all the taxes and ‘multiplier effects’ associated with it anyway. If you limit the zone you measure to only downtown Seattle -then yes, you get a gain – but Bellevue shows an equal loss. Virtually all that money being spent is already in the economy – so the multiplier effect and “tax increment” only applies to the <10% money that is really new to the area.

Using TIF to pay off the bonds means that tax money that WAS being collected by the Cities and the County for their general funds – will no longer be collected. It will, instead, go to paying off the bonds for the arena. That means that the general taxpayer WILL, in fact, be paying for the bonds through losses in general tax revenues that used to be collected. The local tax coffers will experience a loss to the extent that any money that used to be collected by the City and County goes to paying for the bonds – which is almost all of it.

Given the above – if the deal happens – Seattle may get a team back – but the arena will, in fact, be publicly financed. Yes, it will cost the tax payers less than the old proposals, but because the interest and principal will be paid off over several years, the total the tax payers will pay for is still huge. And City backed bonds will use of City bonding capacity that might be used to pay for roads, bridges, and other arguably more important infrastructure. The opportunity costs of the City funding an arena are real.

Because the total amount of net NEW income that will come into the area is relatively small, and the LOSS of tax revenue will be very real – you need to expect a lot of people (like Ron Judd or the Times editorial board) to object to this deal on purely financial grounds and their objections are both accurate and valid.

Addressing Ms. Goldberg’s Pt. #2, above:

The taxes will be collected, so the investors will never need to pay up to make the city whole from this very real loss of general fund revenue.

Addressing Ms. Goldberg’s Pt. #3, above:
The idea that an MOU between the City and Mr. Hansen will have any effect at all on the repayment priorities of eventual bond holders is laughable, and it is embarrassing that our Budget Director would say that. The Bond holders are under no obligation at all to allow the City to be in line for repayment ahead of them, and they would simply refuse to buy the bonds if a clause like that were inserted. You can say whatever you want in an MOU because it isn’t binding on the bond lawyers or anyone else when the time comes to sign contracts and issue bonds.

Addressing Pt. #4, above: When the investors sell the land to the City, it takes the land off the property tax rolls. That’s a revenue loss to the general fund.

Addressing Pt. #5, above: Unless the actual contract emerges from the final negotiations does not include tax increment financing, or a net loss from property taxes, then Ms. Goldberg then that is exactly what she is doing, and the tax payers are very much ‘…on the hook’ for the costs of the arena. Is absolutely signing off on a deal that would impair our City’s finances or our ability to fund our public services”.

Economically, Ms. Goldberg’s arguments don’t measure up, and we have still not heard from the Port of Seattle and Industry on the economic impact of losing Port business because of the location.

I am not saying don’t go after the arena or a basketball team. IF YOU LIKE BASKETBALL – THIS IS STILL A HELL OF A DEAL, and all of us who like basketball will love having the Sonics back – but be more honest and forthright and please don't say it will help the economy, because it won’t; and please don't say it will not cost the tax payers every dollar of taxes that will no longer be collected because it will, and that means the tax payers are very much ‘on the hook’.

1) Municipal League http://www.munileague.org/2012%20Arena%20Proposal.pdf
2) Manufacturing Industrial Council http://www.micouncil.org/
3) Economists http://www.fieldofschemes.com/news/archives/2012/05/4953_seattle_arena_p_1.html

Hopefully the city council will vote against this proposal in its current state.

I know I contacted them as I have contacted you to state my disapproval of this proposal.

Wow……… Thanks for proving the citizens of Seattle are morons. You are not helping us by posting these skewed post. I hope in the future you will think twice before you post because you are hurting our cause.

Thank you,

Citizens of Seattle

As somebody who does not like sports but does work in corporate finance and understand corporate finance I believe this is such an amazing deal for the public that if Seattle lost this it would hurt the city and state for years to come. This is a win win for all involved. The public is the biggest winner in this deal. Hopefully this works out well for the private investors (Hansen, Balmer, Norstrom’s) too. There is very, very little downside in this deal, despite the posturing by the port. The numbers don’t lie.

“Hey man. I’m going to be selling hot dogs and root beer floats and popcorn the same weekend you are doing your garage sale. I was thinking about having some fliers made and posting them around town… would you be interested in going half-n-half on the fliers with me?”

I might respond: “Hmm I don’t know I’m a bit tight on funds… can’t you just buy your own fliers?”

He might respond by saying “I mean, yea I could, but if I made fliers it would be good for both of us. More people coming by means more people at your garage sale.”

“hmmm, I don’t know.”

“Tell ya what, you give me $50 towards the fliers and I’ll pay that 50$ back to you out of whatever I make from selling hot dogs, root beer floats and popcorn on top of the extra traffic you get to your garage sale.”

“Where do I sign?”

Because they are using Sales, Admissions and other taxes to pay off the construction bonds, the city is losing that tax revenue. The bonds are $200M or so (I do not recall the exact number): LOSS of revenue to the city

Hockey and basketball fans spend their money elsewhere and it is likely that that money would produce revenues in some manner to the city.

Other stadiums have been built in recent years without taxpayer support. Mr Hansen is rich and clever – he should be able to do that. If he is threatening to to that if he doesn’t get the deal, well then good riddance….

As a taxpayer, for me getting a hockey team seems pretty low on the priority scale. But I understand this is big news for a lot of people.

The city has already invested $100M into Key Arena. We should find a way to make that investment work.

This shows that not everyone in Seattle is 3 hours behind.

Stop TRYING to find a problem with this!

If Hansen DID build the thing on his own dime critics would STILL bitch and moan! I’m tired of people telling me whats best for me. If you don’t want to go to the arena then don’t and you won’t be paying for it. I choose to go to it and thus I will pay for it.

Its simple people, if you don’t wanna pay for the arena, then don’t go to it! Thats your choice! Don’t tell me what my choices should be and I won’t tell you what choices you should make. Simple

Well played.

http://en.wikipedia.org/wiki/Fisking

Are they as solid as the DOJ police reforms costing $41M ?
http://blogs.seattleweekly.com/dailyweekly/2012/05/mcginns_41_million_total_for_d.php

Yes, and Boeing and other local corporations also “should” run their businesses without tax breaks that incentivize them to stay in our region. But it doesn’t work that way, does it? Believing it should be so does not mean it will ever be so.

Your economic logic is so fuzzy, you really should see if the Times is hiring.

As stated by Derek, “Most of what you are saying is nothing more than a conspiracy theory. If this is done right, the return of the NHL and NBA to your city would be an economic boon that could help address some of the very issues that you named in your post.”

Much of what Bill posted is as likely to happen as it is not likely to happen. Please provide some more fact or proof with a claim like that.

Thanks!

The city could use this arena deal to help revitalize the SoDo district, along with helping the infrastructure around the port. BOTH can come out winning in this deal. It does not have to be one or the other. Having someone offer this great of a deal in this type of economy is a blessing, the city wold be foolish to not take this.