Sacramento Keeps NBA’s Kings, But Gives Up Hundreds of Millions of $$$

Sacramento Keeps NBA’s Kings, But Gives Up Hundreds of Millions of $$$
May 17, 2013

Sean Parnell

Sean Parnell (sean@impactpolicymanagement.com) is president of Impact Policy Management (IPM), a... (read full bio)

The Sacramento Kings of the National Basketball Association have a new billionaire team owner, and that billionaire will have a new stadium for his team, courtesy of local taxpayers.

Two days after the NBA rejected a bid to move the Kings to Seattle, the Maloof family agreed to sell the Kings to a new group of investors who promise to keep the team in Sacramento. The announcement follows the Sacramento City Council’s approval of a deal for a new downtown basketball arena that has a total cost of more than $700 million.

The promise of a new arena was one of the selling points to billionaire software mogul Vivek Ranadive, lead investor of the new group of team owners. Their purchase of the team ends nearly five months of wrangling over whether the team should stay in Sacramento or move to Seattle.

Last January investor Chris Hansen announced that he had struck a deal to buy the team from the Maloof family and move the team to Seattle. Sacramento city officials scrambled to keep the team in their town and arranged a deal to build a new stadium.

Debt, Land, Tax Exemptions

The city would issue bonds to be paid off over 35 years at a cost of at least $574 million. The deal would also cost the city an additional $126 million in property for the stadium and tax exemptions, bringing the total cost to roughly $710 million. The new team ownership would pay $189 million toward the project’s cost, although that figure is substantially reduced once the $126 million in property and tax exemptions is included. Among the properties to be given away are approximately 3,700 parking spaces, six sites for the placement of digital billboards, and several other city-owned properties.

The bonds, which would be interest-only for the first eight years, would be paid off with the city’s profits from its parking garages and parking meters, with hotel tax revenue backstopping the payments if the parking revenues fall short.

“Construction of a new arena is an exciting opportunity for Sacramento, one that will help invigorate our downtown area and make Sacramento an even better place to live,” said John Dangberg, assistant city manager for Sacramento. Dangberg cited the long-time economic struggles of the downtown area, including a 50 percent decline in retail sales taxes in recent years, as justification for the city’s big financial commitment to the project.

‘Serious Risks to Taxpayers’

Not everybody is on board. “There are serious risks to the taxpayers of Sacramento if this deal moves forward,” said Craig Powell, president of local policy group Eye On Sacramento. “Funds would be diverted from other priorities and opportunities, and if the revenue from parking and the hotel tax comes up short the city would be forced to dip into the general fund.”

Powell also noted the long history of failed economic development projects intended to revitalize Sacramento’s downtown area, citing at least $500 million invested in downtown over the years as a “very well-known debacle.” Dangberg confirmed past public investments in downtown had failed but insisted the arena would be different because it would attract retail development.

Rushed Vote, Blocked Comments

The deal was voted on by the City Council only three days after it was announced, drawing sharp criticism from many people. The editorial board of the Sacramento Bee, a supporter of building a new arena, called the rushed vote “a sham of the public, transparent process that should have happened” and noted “public comment on the [deal] clocked in at about one hour Tuesday night, not nearly enough for a project this monumental.”

In addition, critics of the arena plan say they were blocked from even speaking on the deal at the City Council meeting because of the tactics of arena supporters.

According to Eye On Sacramento’s Powell, hours before the meeting supporters of the arena began filling the City Council’s chambers. This forced many opponents to watch the meeting from another room after the chambers were filled to capacity. Because they were not in the City Council chambers, opponents were unable to speak against the deal.

Economic Research Dismissed

Opponents of the $710 million subsidy plan point to what they say is overwhelming academic evidence that taxpayer-subsidized stadiums do not provide meaningful economic growth or redevelopment. In a March 14 letter to Assistant City Manager Dangberg, attorneys Patrick Soluri and Jeffrey Anderson note “trained economists who have analyzed the economic impact of publicly subsidized arenas find no evidence of any economic benefit whatsoever.”

Soluri and Anderson are part of a local effort to stop taxpayer subsidies for the new arena and have threatened to file lawsuits challenging the deal. Among other information, they cite a 2008 review of studies over the last 20 years on sports arenas by economists Dennis Coates and Brad Humphreys that concluded, “The results… are strikingly consistent… articles published in peer reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy.”

Dangberg was quick to dismiss the economic research, however.

“For every study that says these things don’t work, I’ve seen a couple of two cities that have been transformed with major projects like this,” he said. “We’re not going to fold our tent because some professor at a university says it doesn’t work.”

Sean Parnell

Sean Parnell (sean@impactpolicymanagement.com) is president of Impact Policy Management (IPM), a... (read full bio)