BY Art Thiel 02:58PM 06/28/2012

Thiel: Council hears arena help is loan, not gift

After a presentation by staffers of the King County Council’s finance committee staff Thursday morning, Julia Patterson was the  first of the council to recognize publicly that Chris Hansen’s proposed $490 million plan was . . . well, let her tell it.

“As a member of the state Legislature, I voted no on two different stadium proposals,” she said. “This feels different.”

While making no commitment on her vote — there are multiple reports and hearings to come — Patterson after the presentation understood that the cost to property-tax payers in King County was pennies annually, and protections to the general fund were large. She seemed impressed.

“I voted no (on previous sports stadiums) not because of sports but because of the (public financing),” she said during the session, describing her remarks as thoughts out loud. “If the intentions (of this project) are good and the impacts mitigated, we must decide whether the remaining risks are worth it for basketball, knowing that nothing is risk-free.

“The question was whether this was a subsidy, but if it is a loan, governments make loans all the time. If the risks are that small, we may well look at the risks and and say (the project) is worth doing.”

Council member Bob Ferguson asked staffer Mark Melroy, whose presentation included a review of the national and local analyses of public participation in sports stadiums and arenas, if he could answer the question of whether Hansen’s ask of a maximum $200 million from the city and county in the form of tax abatements was a subsidy or a loan.

“You could call it a subsidy,” he said, “but it’s different than a direct cash infusion or the creation of new taxes.”

That speaks to the pivotal aspect of Hansen’s unusual pitch for funding: Debt from the municipal bonds used to help build the arena will be retired on a 30-year schedule of payments that include rents from the teams as well as a forgiveness of taxes on property, sales and admissions, as well as the city’s B&O tax and a leasehold excise tax — tax revenues that would not exist if the arena were not built and operated.

For the first time, the tax revenues were presented under the $200 million scenario: The city’s share of tax revenues put back into the arena would be about $6.7 million annually, and county’s share about $370,000, based upon a previously agreed-upon inter-local ratio between the governments.

That $7 million total in the first year would be combined with $7 million in base rent and additional rent paid by the NBA and NHL teams to cover the estimated $14 million first year cost of the bonds.

Melroy’s testimony disclosed for the first time that Hansen originally asked for a debt schedule that was backloaded, so that the early years were less expensive. The county said no.

“The county did good job negotiating a more even distribution,” Melroy said. “The deal is that the payments escalate one percent a year for 10 years, then level off. That (backloading) was a described in the (sports-stadium) literature as a danger to be avoided.”

The tax revenue figures are based on several assumptions, including a starting price of a $55 average for regular season NBA and NHL tickets, and a 1.67 percent annual ticket price growth, and no playoffs nor lockouts. County staffs have worked out scenarios that include playoffs and lockouts as well.

Other information showed that city and county direct taxes would cover 57 percent of the project’s cost, while team and concert and other event rentals would account for 43 percent of debt retirement.

Regarding risk, Council staffer Wendy Soo Hoo presented an analysis for the public funding claimed to support the proposal as well as its safeguards. She was asked by Ferguson for a summary of her findings.

“While there are economic factors that should be investigated further, this deal as proposed already accounts for a lot of the cautions” that grew from the experiences of building stadiums elsewhere, she said.  “It gave me some comfort. That said, the deal needs to be scrutinized well.”

Because this meeting was of the finance committee, there was no discussion of the project’s most controversial aspect — its location in SoDo, just south of Safeco Field, where Hansen has already spent $40 million acquiring property.

Earlier this week, council member Larry Gossett told supporters that, based on information received so far, he was “favorably disposed” to voting yes on the memorandum of understanding between Hansen and the governments.


YourThoughts

  • Jeff

    So

    • Jeff

      So nice to see the proposal get duscussed by those who understand and work in governement finance. “Governments make loans all the time.” Amen!

      • LeonRussel

        Too bad that public revenues in this plan are a subsidy, and not a loan.  If the millions of dollars in tax revenues that the city and county are putting into the arena are a “loan”, then who is paying the city and county back?  ”Loan” implies the city and county will get that $200 million back.  So, who is going to repay that $200 million from the city and county?

        Nobody, because that $200 million is a subsidy — it is not a loan.

        • DEAMAN

          Ummm, Leon, how about some reading comprehension dude.  The article states that there is a repayment schedule that calls for repayment of the $200 million from specific tax revenue tied to the arena that wouldn’t exist if the arena isn’t built and from rent payments from the owners.  The total first year payment is $14 million, and there is a repayment schedule that covers the life of the lease.  Oh, and further protections for the city not mentioned in this article are the fact that they will own the land and the building as collateral, and that the team will have to sign a 30-year, non-relocation lease agreement that will guarantee the revenue streams (see taxes and rent above) required to repay the bonds.  And if the revenue streams fall short in any year the Hansen group will be required to make up the difference.

          So it is a repayment and the city is protected in multiple ways if the revenue streams that are dedicated to repayment dry up.

          Oh, and you don’t really mention the full quote from Melroy in your previous posts.  ”You could call it a subsidy, but it’s different than a direct cash infusion or a creation of new taxes.”  Plus it’s getting repaid, just like a loan.

          So, not really a subsidy Leon.  Did you read the article Leon?  Can you read?

          • Jamo57

            No response from Leon?   He must have gone back to the island.

          • Jeff

            I work for a small government entity that is frequently involved in construction projects. The silly outrage over a small amount of bonds ($200M is really not that large in regards to construction projects) baffles me. Only people who don’t understand the proposal get their knickers in a bunch over this.

          • LeonRussell


            The article states that there is a repayment schedule that calls for repayment of the $200 million from specific tax revenue tied to the arena that wouldn’t exist if the arena isn’t built and from rent payments from the owners.”

            That is the city’s investment in the arena.  That is city money that the city is paying for the arena.  So, who is paying back the city for the money the city is putting into the arena?

            If the city puts $120 million into the arena, and nobody bpay the city back, then that $120 million was not a ‘loan” — it was a gift.  The only way it could be a loan is if someone pays the city back for the tax revenue the city paid into the arena.

            So, who is paying the city back for the taxes it will pay into the arena?  And who, in this article, said it was a loan?  Because Thiel quotes Melroy as saying “you could call it a subsidy.”  He never quoted anyone saying you could call it a loan.  That’s because the city is not going to bet paid back for the tax revenue it pays towards the Arena.  So, it is not a loan.  lol

            You say, “plus it is getting repaid.”  By whom?  Who is paying the city back the millions of tax dollars the city is putting into the arena?  Care to answer that for me?

          • Jeff

            DEAMAN already answered these questions. Reading the proposal also answers these questions. Ignoring the elements of the proposal and repeating the same questions is an embarassment to anti-arena partisans. Both sides of the debate understand that use taxes on the arena pay back the bonds plus rent from the investors. Now that it’s been explained to you for the third and fourth time you can now post  your “But who pays back the money?? It’s a subsidy” foolishness.

          • LeonRussell

            Taxes pay the bonds.  The taxes belong to the city.  Therefore the city is paying the bonds for the arena.  In other words, the city is paying for up to $120 million of the arena.

            Who pays back the city, genius?  Nobody has answered that because the answer is:  NOBODY PAYS BACK THE CITY.  The city is paying for up to $120 million of the arena with tax revenues, and that is a subsidy from the City of Seattle.

            Taxes are SUBSIDIES.  Nobody gets to keep the taxes generated in their builing — they have to pay the taxes to the city, county or state.  If the city gives that building back that tax revenue, then the city is SUBSIDIZING that building.  That is what is happening with this arena posposal.

            Obviously, you are not smart enough to grasp this very simple concept:  taxes belong to the city — not to the arena.

          • Tim

            It is my understanding that the taxes used to pay the bonds will be from new taxes from the arena that would not exist without the arena and people won’t pay unless they use the arena.  Therefore, if you don’t use the arena, you don’t pay anything for the arena.

  • Jeff

    So

    • Jeff

      So nice to see the proposal get duscussed by those who understand and work in governement finance. “Governments make loans all the time.” Amen!

      • LeonRussel

        Too bad that public revenues in this plan are a subsidy, and not a loan.  If the millions of dollars in tax revenues that the city and county are putting into the arena are a “loan”, then who is paying the city and county back?  ”Loan” implies the city and county will get that $200 million back.  So, who is going to repay that $200 million from the city and county?

        Nobody, because that $200 million is a subsidy — it is not a loan.

        • DEAMAN

          Ummm, Leon, how about some reading comprehension dude.  The article states that there is a repayment schedule that calls for repayment of the $200 million from specific tax revenue tied to the arena that wouldn’t exist if the arena isn’t built and from rent payments from the owners.  The total first year payment is $14 million, and there is a repayment schedule that covers the life of the lease.  Oh, and further protections for the city not mentioned in this article are the fact that they will own the land and the building as collateral, and that the team will have to sign a 30-year, non-relocation lease agreement that will guarantee the revenue streams (see taxes and rent above) required to repay the bonds.  And if the revenue streams fall short in any year the Hansen group will be required to make up the difference.

          So it is a repayment and the city is protected in multiple ways if the revenue streams that are dedicated to repayment dry up.

          Oh, and you don’t really mention the full quote from Melroy in your previous posts.  ”You could call it a subsidy, but it’s different than a direct cash infusion or a creation of new taxes.”  Plus it’s getting repaid, just like a loan.

          So, not really a subsidy Leon.  Did you read the article Leon?  Can you read?

          • Jamo57

            No response from Leon?   He must have gone back to the island.

          • Jeff

            I work for a small government entity that is frequently involved in construction projects. The silly outrage over a small amount of bonds ($200M is really not that large in regards to construction projects) baffles me. Only people who don’t understand the proposal get their knickers in a bunch over this.

          • LeonRussell


            The article states that there is a repayment schedule that calls for repayment of the $200 million from specific tax revenue tied to the arena that wouldn’t exist if the arena isn’t built and from rent payments from the owners.”

            That is the city’s investment in the arena.  That is city money that the city is paying for the arena.  So, who is paying back the city for the money the city is putting into the arena?

            If the city puts $120 million into the arena, and nobody bpay the city back, then that $120 million was not a ‘loan” — it was a gift.  The only way it could be a loan is if someone pays the city back for the tax revenue the city paid into the arena.

            So, who is paying the city back for the taxes it will pay into the arena?  And who, in this article, said it was a loan?  Because Thiel quotes Melroy as saying “you could call it a subsidy.”  He never quoted anyone saying you could call it a loan.  That’s because the city is not going to bet paid back for the tax revenue it pays towards the Arena.  So, it is not a loan.  lol

            You say, “plus it is getting repaid.”  By whom?  Who is paying the city back the millions of tax dollars the city is putting into the arena?  Care to answer that for me?

          • Jeff

            DEAMAN already answered these questions. Reading the proposal also answers these questions. Ignoring the elements of the proposal and repeating the same questions is an embarassment to anti-arena partisans. Both sides of the debate understand that use taxes on the arena pay back the bonds plus rent from the investors. Now that it’s been explained to you for the third and fourth time you can now post  your “But who pays back the money?? It’s a subsidy” foolishness.

          • LeonRussell

            Taxes pay the bonds.  The taxes belong to the city.  Therefore the city is paying the bonds for the arena.  In other words, the city is paying for up to $120 million of the arena.

            Who pays back the city, genius?  Nobody has answered that because the answer is:  NOBODY PAYS BACK THE CITY.  The city is paying for up to $120 million of the arena with tax revenues, and that is a subsidy from the City of Seattle.

            Taxes are SUBSIDIES.  Nobody gets to keep the taxes generated in their builing — they have to pay the taxes to the city, county or state.  If the city gives that building back that tax revenue, then the city is SUBSIDIZING that building.  That is what is happening with this arena posposal.

            Obviously, you are not smart enough to grasp this very simple concept:  taxes belong to the city — not to the arena.

          • Tim

            It is my understanding that the taxes used to pay the bonds will be from new taxes from the arena that would not exist without the arena and people won’t pay unless they use the arena.  Therefore, if you don’t use the arena, you don’t pay anything for the arena.

  • Gstommylee

    Nice work as always Art.

    I just hope the end result is worth the wait.  Part of me thinks its not going to happen but I’ll continue to be remain hopeful that it gets approved.

  • Gstommylee

    Nice work as always Art.

    I just hope the end result is worth the wait.  Part of me thinks its not going to happen but I’ll continue to be remain hopeful that it gets approved.

  • Jamo57

    Thanks for the update Art.

    I have a suggestion for the site.   (Tongue now firmly in cheek).   How about an advice column?    And as such, let me ask the first bit of advice.

    You have recommend us sports fans have patience about the arena deal and have pointed out that, as these things go, this project is moving up the charts with a bullet.    That is all good to hear.

    On the other hand, I have also heard criticism of the Seattle sports fan for assuming that something would happen at the last minute to save the Sonics in the Bennett/Nickels fiasco and not taking the previous threat to the team all that seriously.   That is of course until it was too late.

    So Dr. Art, how should the Seattle sports fan really interact with the respective councils on this one?   And to you know of any resources or support groups for battered fan sydnrome?

  • Jamo57

    Thanks for the update Art.

    I have a suggestion for the site.   (Tongue now firmly in cheek).   How about an advice column?    And as such, let me ask the first bit of advice.

    You have recommend us sports fans have patience about the arena deal and have pointed out that, as these things go, this project is moving up the charts with a bullet.    That is all good to hear.

    On the other hand, I have also heard criticism of the Seattle sports fan for assuming that something would happen at the last minute to save the Sonics in the Bennett/Nickels fiasco and not taking the previous threat to the team all that seriously.   That is of course until it was too late.

    So Dr. Art, how should the Seattle sports fan really interact with the respective councils on this one?   And do you know of any resources or support groups for battered fan sydnrome?

  • LeonRussel

    “You could call it a subsidy,” he said,
    Duh.  This is absolutely a subsidy.  lol


     COUNCIL HEARS ARENA HELP IS LOAN, NOT GIFT”

    That is just a flat-out lie by Art Thiel.  Melroy said it is a subsidy.  That is a gift — not a loan.  How could you get the exact opposite meaning out of what was very clearly said:  it is a subsidy.  Art Thiel get it exactly backwards.  How stupid can you be?  Who said it was a “loan”?  Melroy did not say it was a “loan”, at least not anywhere Thiel quoted him as saying that in this article.  If Melroy said it was a “loan” why didn’t you quote him saying that, Thiel?  Melroy, according to Art, said, “you could call it a subsidy.”  Melroy never said “you could call it a loan.”  Or, if he did, Thiel someone left that out, which would seem to be the key quote from the entire presentation, if indeed, Melroy ever said that, which I doubt.

    • srsly?

      *facepalm*

  • LeonRussel

    “You could call it a subsidy,” he said,
    Duh.  This is absolutely a subsidy.  lol


     COUNCIL HEARS ARENA HELP IS LOAN, NOT GIFT”

    That is just a flat-out lie by Art Thiel.  Melroy said it is a subsidy.  That is a gift — not a loan.  How could you get the exact opposite meaning out of what was very clearly said:  it is a subsidy.  Art Thiel get it exactly backwards.  How stupid can you be?  Who said it was a “loan”?  Melroy did not say it was a “loan”, at least not anywhere Thiel quoted him as saying that in this article.  If Melroy said it was a “loan” why didn’t you quote him saying that, Thiel?  Melroy, according to Art, said, “you could call it a subsidy.”  Melroy never said “you could call it a loan.”  Or, if he did, Thiel someone left that out, which would seem to be the key quote from the entire presentation, if indeed, Melroy ever said that, which I doubt.

    • srsly?

      *facepalm*

  • Mr. Earl

    Banks loan businesses money.   If its a good loan the banks will make it.

    The team ready Ponitac Silverdome sold at auction for $500,000.

    There is a pretty good risk  the ball club might leave  town when somebody strikes oil in say..North Dakota.

    Key Arena works fine for basketball..

    • Tim

      1) Key Arena works for basketball, it does not work for the NBA.  Arenas need the bells and whistles now, that’s just the way it is, please stop making the Key Arena argument.

      2) Key Arena was specifically designed to not support an ice hockey rink. Enough said there, please stop making the Key Arena argument

      3) Key Arena cannot be updated without a complete rebuild from scratch, which Art has laid out time and time again in columns.  Please stop making the Key Arena argument.

      • Mr. Earl

         If the public is to finance the stadium, the public should own the team, franchise and stadium.

  • Mr. Earl

    Banks loan businesses money.   If its a good loan the banks will make it.

    The team ready Ponitac Silverdome sold at auction for $500,000.

    There is a pretty good risk  the ball club might leave  town when somebody strikes oil in say..North Dakota.

    Key Arena works fine for basketball..

    • Tim

      1) Key Arena works for basketball, it does not work for the NBA.  Arenas need the bells and whistles now, that’s just the way it is, please stop making the Key Arena argument.

      2) Key Arena was specifically designed to not support an ice hockey rink. Enough said there, please stop making the Key Arena argument

      3) Key Arena cannot be updated without a complete rebuild from scratch, which Art has laid out time and time again in columns.  Please stop making the Key Arena argument.

      • Mr. Earl

         If the public is to finance the stadium, the public should own the team, franchise and stadium.

  • RadioGuy

    Okay, so if I get this right, Hansen’s group is going to be “loaned” $200 million, but the “loan” will be paid back by taxpayers at no cost to Hansen’s group?  DAMN!  I want that deal!

    Ahhh, why am I even worrying about this?  I live 100 miles away and can watch a entire season of prep or NWAACC hoops locally for less than one Sonics ticket will cost.  To me, basketball is a sport, not a status symbol…guess that makes me a “naysayer” for not drinking the KJR Kool-Aid.

  • RadioGuy

    Okay, so if I get this right, Hansen’s group is going to be “loaned” $200 million, but the “loan” will be paid back by taxpayers at no cost to Hansen’s group?  DAMN!  I want that deal!

    Ahhh, why am I even worrying about this?  I live 100 miles away and can watch a entire season of prep or NWAACC hoops locally for less than one Sonics ticket will cost.  To me, basketball is a sport, not a status symbol…guess that makes me a “naysayer” for not drinking the KJR Kool-Aid.

  • Mr. Earl

    Cities should always own their franchises and their teams.

    Example.  NY Yankees.  Good luck moving that franchise.  But it could be done.  They moved  the Seattle Supersonics didn’t they?

    If OKC wanted a team they should have applied for one.

    This whole stadium thing is a scam.  If investors believe in it, pony up the money.

  • Mr. Earl

    Cities should always own their franchises and their teams.

    Example.  NY Yankees.  Good luck moving that franchise.  But it could be done.  They moved  the Seattle Supersonics didn’t they?

    If OKC wanted a team they should have applied for one.

    This whole stadium thing is a scam.  If investors believe in it, pony up the money.

  • Mr. Earl

     What Bells and whistles are missing from Key Arena?  I’ve been to the venue and the suites.  Nice place.

  • Mr. Earl

     What Bells and whistles are missing from Key Arena?  I’ve been to the venue and the suites.  Nice place.

  • Mr. Earl

    Here is a quote from an AP story about Pac Bell park in San Francisco  http://www2.ljworld.com/news/2002/oct/22/privately_built_pacific/

    “What really sets the $357 million downtown stadium apart, though, is
    its distinction as the only privately financed major league stadium
    built in the last four decades.

    And that is turning into a curse for other teams across the country
    that have been trying to convince state legislators and voters that tax
    money is needed to build new stadiums.”

    Tax dollars are not needed to finance privately owned sports teams and facilities.  It’s like using tax dollars to build a Sheraton Hotel.

    Investors in these projects pay for their facilities and earn the profits from their investments.

    Taxing people who cannot afford to come to games to build a stadium is ludicrous.  What ever became of the idea of taxing people on their incomes..the graduated income tax?  Legislators look to the sales and lodging tax as an easy way to fund projects like this without ever considering the regressive nature of the tax.

    “Taxes shall be levied according to ability to pay. That is the only American principle.” FDR
     

    Sales/lodging taxes are  taxes on expenses, not income. Whose idea is that?

    As a percent of income, sales/lodging/taxes are wildly popular with the wealthy.  They pay virtually zip. Less than .ooo1 of their incomes

    Aperson making 30,000, pays approximately 10%  as a percentage of income.

    What would you like your tax dollars to fund?  Parks, transportation infrastructure, community colleges and Universities, help for the blind and handicapped, low cost housing, medical care for those less fortunate or privately owned sports stadiums?

    I apologize for monopolizing this topic but feel discussion of these issues is  important.

    Howard Cosells book, “I never played the game” discusses the issue of moving franchises and public financing of stadiums at length.

  • Mr. Earl

    Here is a quote from an AP story about Pac Bell park in San Francisco  http://www2.ljworld.com/news/2002/oct/22/privately_built_pacific/

    “What really sets the $357 million downtown stadium apart, though, is
    its distinction as the only privately financed major league stadium
    built in the last four decades.

    And that is turning into a curse for other teams across the country
    that have been trying to convince state legislators and voters that tax
    money is needed to build new stadiums.”

    Tax dollars are not needed to finance privately owned sports teams and facilities.  It’s like using tax dollars to build a Sheraton Hotel.

    Investors in these projects pay for their facilities and earn the profits from their investments.

    Taxing people who cannot afford to come to games to build a stadium is ludicrous.  What ever became of the idea of taxing people on their incomes..the graduated income tax?  Legislators look to the sales and lodging tax as an easy way to fund projects like this without ever considering the regressive nature of the tax.

    “Taxes shall be levied according to ability to pay. That is the only American principle.” FDR
     

    Sales/lodging taxes are  taxes on expenses, not income. Whose idea is that?

    As a percent of income, sales/lodging/taxes are wildly popular with the wealthy.  They pay virtually zip. Less than .ooo1 of their incomes

    Aperson making 30,000, pays approximately 10%  as a percentage of income.

    What would you like your tax dollars to fund?  Parks, transportation infrastructure, community colleges and Universities, help for the blind and handicapped, low cost housing, medical care for those less fortunate or privately owned sports stadiums?

    I apologize for monopolizing this topic but feel discussion of these issues is  important.

    Howard Cosells book, “I never played the game” discusses the issue of moving franchises and public financing of stadiums at length.