Six years after the Initiative 91 vote was looked upon by the NBA as a reflection of Seattle’s lack of desire to keep the Sonics, the law is at the heart of a fresh, direct conflict between Chris Hansen and those who want him and his partners to pay more of the $490 million tab for his basketball/hockey arena.
Chris Van Dyk, a principal drafter of the initiative that became law after a 74 percent yes vote in Seattle, told a meeting of the City Council finance committee Thursday that the memorandum of understanding among city, King County and Hansen that is up for consideration “does not meet the simple requirements of I-91. Teams need to show us their money, not taxpayer money.
“If the city plays fast and loose with its meaning, any Seattle resident would have standing to file a lawsuit to challenge the deal as a violation of the law that requires an annual return equivalent to a Treasury bond, currently around 2.7 percent, in exchange for city investment in pro sports facilities.
Van Dyk’s position was a bit of a surprise, since for weeks he was neutral to slightly supportive of Hansen’s proposal, calling it “the best one” Seattle has seen. And despite his dramatic, slightly bombastic presentation to the council and the media afterward, he conceded that Hansen’s deal “was very close.”
I-91, a civic response to new Sonics owner Clay Bennett’s demands for a publicly funded arena to replace then-10-year-old KeyArena, became an ordinance that makes mandatory a return “for the value of goods, services, real property or facilities provided or leased by the City of Seattle to for-profit professional sports organizations” to be “at or above the fair value of the goods, services, real property or facility being provided or leased.” Fair value is defined as “no less than the rate of return on a U.S. Treasury Bond of 30 years duration at the time of inception.” In other words, the city obligated to make a little money when it transacts with pro sports franchises.
Van Dyk said a return at the current 2.7 percent rate on a $120 million commitment from the city in a lease-purchase of the arena for an NBA team, would amount to $3.4 million annually.
“It’s a small portion of the salary of an NBA center,” he said.
That may be true, but it would be a large, unplanned hit to the financing plan set up in the MOU.
A snapshot of the 30-year debt retirement plan that calls for $290 million in private capital and $200 million from the city and county as a lease-purchase shows that, for example, in year 3, $14 million will be owed on construction bonds at 5.5 percent.
To pay off the $14 million, the city would return to investors about $7 million in taxes, the county about $500,000, and the rest of the debt would be paid by Hansen’s investors, in the form of $2 million in base rent and another $4.5 million in what Hansen calls “additional rent, ” basically cash to retire debt. Hansen and the mayor’s office believe it’s a fair plan covers the city and makes the arena investment viable long-term.
So finding another $3.4 million to comply with Van Dyk’s view of I-91 would be a hard squeeze.
So much so that the Hansen camp created a PowerPoint deck, found here, and posted it Thursday to the sonicsarena.com website that disputed Van Dyk’s cllaims, as well as some of the assertions made by the city council staff in documents posted last week found here.
The reader is advised to pour a drink in preparation for a deep document dive. As an alternative, and at risk of severe over-simplification, here’s s quick summary:
Van Dyk believes that the law calls for an annual return over and above any “mortgage” to which the city agrees with investors. Hansen believes that since his deal calls for the city to end up owning the arena and the land, the land alone in 3o years — even if the costs for bulldozing the by-then-antiquated arena are subtracted — will be worth about $200 million, making for an average annual return of 7.4 percent, greatly exceeding the minimum returned required by I-91.
It was plain Thursday in the discussion among council members and staff that while Van Dyk’s contention in the public-comment portion of the meeting was not exactly embraced, mostly because I-91 seems to be silent on the question of whether the 2.7 percent return has to be separate, rather than a part of a greater, return, neither were they eager to put an appraisal on seven acres of land 30 years from now in SoDo as the primary return on the city’s risk.
“I don’t want to do that,” said council member Mike O’Brien.
After the meeting, council member Sally Clark, who has been openly skeptical of the city’s return in the proposal, seemed conflicted with the arguments. But then she leaned.
“I don’t know,” she said. “I realize I could change my mind tomorrow morning. But right now, it seems like breaking even on the deal isn’t enough for the city, and it may not be enough for I-91.”
The council staff presented three options to the council for consideration regarding I-91.
*Exempt the arena from I-91;
*Determine that I-91 doesn’t apply, because it never anticipated the public-private, lease-purchase proposed by Hansen and is silent on whether it constitutes “fair value” for the city’s investment;
*Apply alternate “tests” to determine whether the arena is consistent with the “fair value” requirement.
The last is bureaucratese for coming up with a better idea. They offered one: Negotiate a 1.5 percent “risk premium” with Hansen.
Basically that means Hansen would pay more up front over 30 years instead of forcing, say, the 2043 city council to admit that the only I-91 payoff was the seven acres in SoDo that became liquified goo in the 9.0 earthquake of 2040.
The risk of such a disaster seems small — unless you ask someone from Japan.
In a poll of one council member, Clark, she seemed to like that up-front level of security.
Without knowing whether either the council or Hansen would find such an alternative a plausible negotiation, it could be argued by most rational people that it at least would be enough to stymie the threat of expensive, time-consuming litigation by a Van Dyk acolyte. The extra cash up front is plenty of “fair value.”
54 Comments
Once Van Dyk is appeased, so what, Section 5 of I-91 allows any citizen to sue. Peter Steinbrueck is paid to stop the arena, why wouldn’t he sue to slow it down?
You have squeezed 1.5% more out of Hansen AND the proposal is delayed by I-91?
Sounds stupid and plausible.
Hansen and his wealthy partners should just pay for everything themselves, and put a stop to this debate. You know, like Magic Johnson and his wealthy partners just bought the L. A. Dodgers AND Dodger Stadium for about $2 BILLION? They own the team and the stadium. The City of L.A. was not involved in that deal at all. Why doesn’t Hansen do the same thing here — pay for the team and the arena. His group can certainly afford it.
Hansen would make a great used car salesman.
You know that wouldn’t end the debate. You’d still be getting objections from the Port of Seattle and the Mariners. They’ve been loudest of the anti-arena groups.
The question regarding a lawsuit: Which entity wants to be deemed the bad guy by the constituencies who want Hansen’s deal, which include the mayor and county exec? This could get real mean, real quick, and have consequences beyond Hansen’s withdrawal, which by the way, he has yet to threaten.
Props to him for resisting the use of the final option, even though it is there, unspoken.
Well, Leon, the City of LA WAS involved in the building of Dodger Stadium in the early 60’s. Reader’s Digest version: The City exercized eminent domain over Chavez Ravine, bought out residents (mostly Latinos) who were too poor to fight it, and then traded the land to Walter O’Malley for Wrigley Field (which the Dodgers had purchased) and the land around it.
I’m not talking about the early 60’s. I am talking about 2012, when the Dodgers AND Dodger Stadium were just purchased for about $2 BILLION. No tax revenues involved. Just a private business deal. That is what should happen in Seattle, as well. Keep city tax revenues out it.
You do realize that buying a building and building a building are, in fact, two separate concepts. Buying a built and functioning Dodger Stadium in 2012 has nothing to do with building a new arena in any year.
Good point: Some analogies, but lots of differences in each market/deal.
No public participation would be ideal, Leon. But because the investors are proposing to build from scratch an arena AND purchase two teams in a market that will never generate the TV revs of LA/SF, they want some public help for what they believe will be a public benefit. Not perfect, but fair, as long as they guarantee no losses to the city/county and pay for cost overruns.
Every business in Seattle has “public benefit”. For example the privately-owned Space Needle. Doesn’t it have “public benefit” to Seattle? Yet, the Space Needle does not get the taxes it generates given back to it, as Hansen wants.
That too, Leon. Examples abound, even though many big Calif cities are saying a flat no to public participation in sports developments.
Leon, if you had been reading here earlier, you would know that the project will cost less because municipalities can borrow more cheaply than private investors. Also, the owners are gambling that Seattle, a much smaller and more isolated market than either LA or the Bay Area, can support two more major pro teams. Hansen has yet to offer up that point publicly, because it makes rich guys look like they’re pleading for sympathy. But any independent, sober sports economist will suggest that it is a risky play in the Seattle market, especially because some of the few Fortune 500 players here, like Amazon and PACCAR, don’t engage in sports advertising and sponsorships.
You mean the Dodger Stadium that was build on land given to the organization by the city for FREE???? And is now privately owned? Completely different situation, Magic and his group bought a privately owned franchise and a privately owned stadium with private money. In this case, the city would subsidize the stadium (With tax dollars generated by aid stadium) and then own it down the road. This happens all the time, and typically with much les planning and care that the way Hansen is presenting.
Hansen should build a privately-owned arena on private land with private money.
You know, like most businesses in Seattle?
I agree Leon. And all those private concessionaires doing business in our state and national parks should do the same! Build their own Grand Canyons and Mount Rainiers I say!!!!
A lawsuit from an interested party with standing has always been a possibility. Both parties are working hard to avoid it. The port may huff and puff, but they will be extremely reluctant to be a litigant against the mayor’s plan, for all the obvious reasons. Doesn’t mean Van Dyk will be stopped from filing, and I suspect Hansen et al has made plans to deal with that possibility.
Once Van Dyk is appeased, so what, Section 5 of I-91 allows any citizen to sue. Peter Steinbrueck is paid to stop the arena, why wouldn’t he sue to slow it down?
You have squeezed 1.5% more out of Hansen AND the proposal is delayed by I-91?
Sounds stupid and plausible.
Hansen and his wealthy partners should just pay for everything themselves, and put a stop to this debate. You know, like Magic Johnson and his wealthy partners just bought the L. A. Dodgers AND Dodger Stadium for about $2 BILLION? They own the team and the stadium. The City of L.A. was not involved in that deal at all. Why doesn’t Hansen do the same thing here — pay for the team and the arena. His group can certainly afford it.
Hansen would make a great used car salesman.
You know that wouldn’t end the debate. You’d still be getting objections from the Port of Seattle and the Mariners. They’ve been loudest of the anti-arena groups.
The question regarding a lawsuit: Which entity wants to be deemed the bad guy by the constituencies who want Hansen’s deal, which include the mayor and county exec? This could get real mean, real quick, and have consequences beyond Hansen’s withdrawal, which by the way, he has yet to threaten.
Props to him for resisting the use of the final option, even though it is there, unspoken.
Well, Leon, the City of LA WAS involved in the building of Dodger Stadium in the early 60’s. Reader’s Digest version: The City exercized eminent domain over Chavez Ravine, bought out residents (mostly Latinos) who were too poor to fight it, and then traded the land to Walter O’Malley for Wrigley Field (which the Dodgers had purchased) and the land around it.
I’m not talking about the early 60’s. I am talking about 2012, when the Dodgers AND Dodger Stadium were just purchased for about $2 BILLION. No tax revenues involved. Just a private business deal. That is what should happen in Seattle, as well. Keep city tax revenues out it.
You do realize that buying a building and building a building are, in fact, two separate concepts. Buying a built and functioning Dodger Stadium in 2012 has nothing to do with building a new arena in any year.
Good point: Some analogies, but lots of differences in each market/deal.
No public participation would be ideal, Leon. But because the investors are proposing to build from scratch an arena AND purchase two teams in a market that will never generate the TV revs of LA/SF, they want some public help for what they believe will be a public benefit. Not perfect, but fair, as long as they guarantee no losses to the city/county and pay for cost overruns.
Every business in Seattle has “public benefit”. For example the privately-owned Space Needle. Doesn’t it have “public benefit” to Seattle? Yet, the Space Needle does not get the taxes it generates given back to it, as Hansen wants.
That too, Leon. Examples abound, even though many big Calif cities are saying a flat no to public participation in sports developments.
Leon, if you had been reading here earlier, you would know that the project will cost less because municipalities can borrow more cheaply than private investors. Also, the owners are gambling that Seattle, a much smaller and more isolated market than either LA or the Bay Area, can support two more major pro teams. Hansen has yet to offer up that point publicly, because it makes rich guys look like they’re pleading for sympathy. But any independent, sober sports economist will suggest that it is a risky play in the Seattle market, especially because some of the few Fortune 500 players here, like Amazon and PACCAR, don’t engage in sports advertising and sponsorships.
You mean the Dodger Stadium that was build on land given to the organization by the city for FREE???? And is now privately owned? Completely different situation, Magic and his group bought a privately owned franchise and a privately owned stadium with private money. In this case, the city would subsidize the stadium (With tax dollars generated by aid stadium) and then own it down the road. This happens all the time, and typically with much les planning and care that the way Hansen is presenting.
Hansen should build a privately-owned arena on private land with private money.
You know, like most businesses in Seattle?
I agree Leon. And all those private concessionaires doing business in our state and national parks should do the same! Build their own Grand Canyons and Mount Rainiers I say!!!!
A lawsuit from an interested party with standing has always been a possibility. Both parties are working hard to avoid it. The port may huff and puff, but they will be extremely reluctant to be a litigant against the mayor’s plan, for all the obvious reasons. Doesn’t mean Van Dyk will be stopped from filing, and I suspect Hansen et al has made plans to deal with that possibility.
If the land is going to appreciate so much, according to Hansen, then why doesn’t Hansen just keep it? He already owns it. Then Hansen himself could reap the great profits he predicts for that property. Why does he insist the city by it from Hansen, and that the city own it?
Hansen does seem to be admitting that the arena itself would e worthless after 30 years, going so far as to even calculate the cost of tearing it down 30 years from now. lol
Hansen and his “$15 billion dollar man” partner Steve Ballmer should just do the right thing, and pay the full cost of the arena themselves. Then they will own the arena and the land, which they can sell whenever they want to, and they won’t have to pay any rent on the arena or land, because they will own it. What is their motivation? There must be some great benefit to the investors to have the deal done they way they have proposed. Why should the city spend tax dollars to benefit these billionaire investors?
My suspicion is that the rent the investors will be paying the city for the land and the portion of the arena the city will pay for is way below fair market value. The rent alone should cover the entire bond service, with a profit in addition, so the city makes money off of their investment. There should be no tax revenues whatsoever going into the arena or property.
The city of Seattle should not be in the business of real estate speculation. Is that core function of city government — real estate speculation?
Leon, Hansen is willingly conceding the worst scenario ahead of the objection — that Seattle’s experience with the Kingdome and KeyArena, as well as many sports palaces around the country, reach economic obsolescence in less than 30 years. But he presumes that land value alone will more than meet the “fair value” compensation mandated by I-91. The problem is the council doesn’t like playing the tenuous game of real estate appraisal 30 years down the road.
As proposed, the rent Hansen is committing to guarantees the city will suffer no annual shortfall. The owners will make up any difference (with increased rent) to cover the annual bond indebtedness. But the MOU does not guarantee a positive cash flow to the city, which Van Dyk contends is the intent of I-91
But in a public-private partnership, some risks are assumed by both parties. No one should describe this project as either risk–free or self-funding, because those can’t be precisely determined before this process is finished.
You didn’t answer my question: why doesn’t Hansen want to own the land himself, and reap the great profits he claims the city will reap when they sell the land 30 years from now?
Why doesn’t Hansen want to own that land himself? Can you answer that question?
If the land is going to appreciate so much, according to Hansen, then why doesn’t Hansen just keep it? He already owns it. Then Hansen himself could reap the great profits he predicts for that property. Why does he insist the city by it from Hansen, and that the city own it?
Hansen does seem to be admitting that the arena itself would e worthless after 30 years, going so far as to even calculate the cost of tearing it down 30 years from now. lol
Hansen and his “$15 billion dollar man” partner Steve Ballmer should just do the right thing, and pay the full cost of the arena themselves. Then they will own the arena and the land, which they can sell whenever they want to, and they won’t have to pay any rent on the arena or land, because they will own it. What is their motivation? There must be some great benefit to the investors to have the deal done they way they have proposed. Why should the city spend tax dollars to benefit these billionaire investors?
My suspicion is that the rent the investors will be paying the city for the land and the portion of the arena the city will pay for is way below fair market value. The rent alone should cover the entire bond service, with a profit in addition, so the city makes money off of their investment. There should be no tax revenues whatsoever going into the arena or property.
The city of Seattle should not be in the business of real estate speculation. Is that core function of city government — real estate speculation?
Leon, Hansen is willingly conceding the worst scenario ahead of the objection — that Seattle’s experience with the Kingdome and KeyArena, as well as many sports palaces around the country, reach economic obsolescence in less than 30 years. But he presumes that land value alone will more than meet the “fair value” compensation mandated by I-91. The problem is the council doesn’t like playing the tenuous game of real estate appraisal 30 years down the road.
As proposed, the rent Hansen is committing to guarantees the city will suffer no annual shortfall. The owners will make up any difference (with increased rent) to cover the annual bond indebtedness. But the MOU does not guarantee a positive cash flow to the city, which Van Dyk contends is the intent of I-91
But in a public-private partnership, some risks are assumed by both parties. No one should describe this project as either risk–free or self-funding, because those can’t be precisely determined before this process is finished.
You didn’t answer my question: why doesn’t Hansen want to own the land himself, and reap the great profits he claims the city will reap when they sell the land 30 years from now?
Why doesn’t Hansen want to own that land himself? Can you answer that question?
Why does anyone give Van Dyk time anymore? Is there a greater attention whore in this town? This is a guy who doesn’t even live in King County – yet because the media kisses his ass, continues to play out the fact that he didn’t get picked for the b-ball team as a kid.
This guy is a troll who tried to subvert a kids playfield getting built in his own town.
End this nonsense and ignore this troll.
(And why hasn’t anyone ever investigated how he funds all these shenanigans?)
I realize it feels good to vent, Sand, but personalizing the issues around Van Dyk doesn’t shed much light. If he didn’t oppose, someone else would, because there’s a lot of nonsports fans in this region who, as taxpayers, feel ripped off by pro sports. I think the Hansen proposal is far different. But please understand that there are people on the other side of the argument who are just as passionate as you.
His objections are not necessarily a deal breaker.
Why does anyone give Van Dyk time anymore? Is there a greater attention whore in this town? This is a guy who doesn’t even live in King County – yet because the media kisses his ass, continues to play out the fact that he didn’t get picked for the b-ball team as a kid.
This guy is a troll who tried to subvert a kids playfield getting built in his own town.
End this nonsense and ignore this troll.
(And why hasn’t anyone ever investigated how he funds all these shenanigans?)
I realize it feels good to vent, Sand, but personalizing the issues around Van Dyk doesn’t shed much light. If he didn’t oppose, someone else would, because there’s a lot of nonsports fans in this region who, as taxpayers, feel ripped off by pro sports. I think the Hansen proposal is far different. But please understand that there are people on the other side of the argument who are just as passionate as you.
His objections are not necessarily a deal breaker.
Thanks, Art, for your continuing informative coverage of this issue. It seems to me that the city and the Hansen group are actually quite close to a deal financially. Pressue on the Council from the Port will no doubt continue. The Port has a beef because the city diverted funds intended for a Sodo traffic fix to a Mercer Mess redo to satisfy Vulcan Inc. But the arena sponsors should not be pilloried because the city did keep its Sodo traffic promises.
For those familiar with traffic near sports arenas in NY, LA, Philadelpia, Boston, DC, and Chicago,
the prospective Sodo jam ups seem comparatively small in any case. Normal traffic elsewhere
is uaully seen as a traffic jam in Seattle. We’re not in the provinces anymore but continue to think that way.
Lou, thanks for the good words.
Regarding traffic comparisons, there is no major market in the country that has its downtown, its deepwater port and its sports arenas crammed into the same two square miles. Been to ’em all, and Seattle is unique. This arena site was bound to be troublesome, compounded by the fact that we were late to the public-transport party and don’t have rail tracks that reach our biggest container piers.
Thanks, Art, for your continuing informative coverage of this issue. It seems to me that the city and the Hansen group are actually quite close to a deal financially. Pressue on the Council from the Port will no doubt continue. The Port has a beef because the city diverted funds intended for a Sodo traffic fix to a Mercer Mess redo to satisfy Vulcan Inc. But the arena sponsors should not be pilloried because the city did keep its Sodo traffic promises.
For those familiar with traffic near sports arenas in NY, LA, Philadelpia, Boston, DC, and Chicago,
the prospective Sodo jam ups seem comparatively small in any case. Normal traffic elsewhere
is uaully seen as a traffic jam in Seattle. We’re not in the provinces anymore but continue to think that way.
Lou, thanks for the good words.
Regarding traffic comparisons, there is no major market in the country that has its downtown, its deepwater port and its sports arenas crammed into the same two square miles. Been to ’em all, and Seattle is unique. This arena site was bound to be troublesome, compounded by the fact that we were late to the public-transport party and don’t have rail tracks that reach our biggest container piers.
I haven’t heard brought up that the City Council exempted the Storm from the provisions of I-91 when they negotiated the Key Arena lease.
I’ll be mean and pick on the Storm: by doing this, the Council has at a minimum set a precedent that I-91 doesn’t apply in “certain” situations.
Where was the bloviating Van Dyk when this happened?
It was brought up yesterday. Council member Sally Clark reports that the city did exempt the Storm from I-91, but that it was legally unnecessary. The Storm, like SU men’s hoops, ice shows and concerts, are renters, and not seeking city funds to improve the building for increasing their revenues. In addition, the Storm agreed to do a series of non-game community events that the council said were public benefits that met some of the “fair value” requirement of I-91.
But I suspect that if Hansen wanted to parse the Storm lease as Van Dyk has parsed the language of I-91, an argument could be made that some limited precedent has been set.
I haven’t heard brought up that the City Council exempted the Storm from the provisions of I-91 when they negotiated the Key Arena lease.
I’ll be mean and pick on the Storm: by doing this, the Council has at a minimum set a precedent that I-91 doesn’t apply in “certain” situations.
Where was the bloviating Van Dyk when this happened?
It was brought up yesterday. Council member Sally Clark reports that the city did exempt the Storm from I-91, but that it was legally unnecessary. The Storm, like SU men’s hoops, ice shows and concerts, are renters, and not seeking city funds to improve the building for increasing their revenues. In addition, the Storm agreed to do a series of non-game community events that the council said were public benefits that met some of the “fair value” requirement of I-91.
But I suspect that if Hansen wanted to parse the Storm lease as Van Dyk has parsed the language of I-91, an argument could be made that some limited precedent has been set.
One question I have about Van Dyk’s numbers, and perhaps I’m just not reading this clearly, is that if the city’s total commitment were to be $120m, wouldn’t the $3.4m that the city should see in positive ROI be a single value over the life of the terms? Why would it be $3.4m (actually $3.24m at the proper 2.7 percent rate) annually? It’s not as if the city would be contributing $120m to the project annually.
My understanding is that I-91 presumes annual compensation for each year of the lease. But I would take the counsel an independent lawyer on whether I-91 is silent on the matter. Van Dyk asserts that the the $3.25M is in addition to the city’s annual rebate of the arena-generated taxes.
One question I have about Van Dyk’s numbers, and perhaps I’m just not reading this clearly, is that if the city’s total commitment were to be $120m, wouldn’t the $3.4m that the city should see in positive ROI be a single value over the life of the terms? Why would it be $3.4m (actually $3.24m at the proper 2.7 percent rate) annually? It’s not as if the city would be contributing $120m to the project annually.
My understanding is that I-91 presumes annual compensation for each year of the lease. But I would take the counsel an independent lawyer on whether I-91 is silent on the matter. Van Dyk asserts that the the $3.25M is in addition to the city’s annual rebate of the arena-generated taxes.