BY Art Thiel 06:50PM 11/19/2013

Report by arena foes say taxpayer cost is $731M

I-91 supporters Sonics Without Subsidies claims deal between Chris Hansen and the city contains “gross shortfalls” in estimating the real public cost of the proposed arena.

Chris Hansen’s proposed arena in SoDo is drawing renewed fire from a new opposition group, Sonics Without Subsidies. / 360 Architects

Another consequence for Chris Hansen’s failure to acquire the Sacramento Kings to play in Seattle this fall: It provided time for opponents of his proposed $500 million basketball/hockey arena in SoDo to armor up. Foes Tuesday released a consultant’s report that says the cost to city and county taxpayers in the proposal is more than $731 million over 32 years, not the advertised $200 million.“This is a duckling, and a very ugly one,” said Seattle attorney Cleveland Stockmeyer of the report that skewers the memorandum of understanding (MOU) between Hansen, the arena developer, the city and King County.

Calling the deal “financially reckless conduct” by the city, Stockmeyer, who represents city taxpayers and supporters of Initiative 91 that became city law in 2007 preventing public subsidies for facilities that primarily benefit pro sports teams, said his group will present the findings “of illegal subsidies” in individual meetings with City Council members and mayor-elect Ed Murray.

If the city fails to amend the MOU to eliminate public subsidies from the deal, he promised to sue Hansen, the city and county.

“This deal represents a tax shirking by billionaires to make a profit,” said Stockmeyer at a press conference in law offices in the Columbia Center tower. “It’s the one percent (of America’s wealthiest) asking for zero percent taxes.”

A new organization Stockmeyer called Sonics Without Subsidies claims to be supportive of the return of pro basketball, but not under the terms and conditions of the MOU. Stockmeyer was the lead attorney in the group’s attempt to stop the city’s draft environmental impact statement authorized by the MOU, a claim rejected in September in King County Superior Court as being premature because no actions had been taken regarding the arena. No ruling was made on the validity of the claims.

The group contends that the deal does not meet the fair-value standards in I-91 for required payments to the city from the private operator, Hansen’s ArenaCo company. Rather than being portrayed as a “free arena” after $200 million borrowed by the city is paid back via arena revenues, the report, prepared by Dr. Adrien Gamache of Private Valuations, Inc. of Bellevue, cites “gross shortfalls” in the MOU’s accounting of actual public expense over the life of the deal.

Also cited is a lack of protection, via performance bonds, for up to $600 million in public funding.

Gamache’s report focuses on three parts of the debt service on the project:

  • A shortfall in the public financing of $149.3 million
  • A shortfall in the payments from arena tax credits of $424.5 million
  • A shortfall on the costs of property taxes avoided at $250.3 million

The combined fair-value shortfalls total $824 million, from which Gamache subtracted $92.4 million as the estimated value of land and improvements at the end of 32 years, leaving a total of about $731 million. Copies of his 23-page report, plus numerous exhibits outlining his calculations, were provided to the media at the press conference. Gamache’s company was paid $15,000 for the study.

City Council members and staffers, from the time the original deal was created between Hansen and outgoing Mayor Mike McGinn, through changes negotiated with Hansen by the council, have insisted the MOU was I-91 compliant.

The initiative that became law has often been criticized for its ambiguity. But its enactment was decisive in the departure of the Sonics in July 2008 for Oklahoma City. While the little-understood ballot measure drew no organized opposition, the 74 percent majority was seen by NBA Commissioner David Stern and some owners as unique in any U.S. city and a repudiation of their efforts to build an arena through a public-private partnership.

The law remains on the books, but is also subject to repeal by the council via majority vote. However, repeal would require a majority of council members to reject the will of a 3-to-1 majority of 2007 voters.

Stackmeyer’s goal is to persuade council members in individual meetings that Gamache’s research is a true reflection of the public cost. The city is likely to contend that the vague definition of what constitutes fair value in the law’s vague language does not invalidate the the MOU and its cost calculations.

A failure to reach agreement, and a subsequent approval by the council of the draft EIS to commence the SoDo arena under the current MOU, apparently would trigger a lawsuit by Sonics Without Subsidies. Stackmeyer said some of the information earlier was sent for inclusion in public comments for the draft EIS as well as to council members.

“We never got a response,” he said.

Hansen paid about $55 million for the seven acres of property immediately south of Safeco Field to house the 18,000-seat arena. But the fast-track project was thwarted in May by a 22-8 vote of NBA owners to keep the Kings in Sacramento in a proposed new arena, rather than relocate to Seattle. Hansen’s plan, which turned into five months of intense controversy in both cities and a national curiosity, included a tenancy of two to three years at KeyArena, the Sonics home, while the arena was built.

Hansen vowed to continue the project, although without the pending arrival of a team, it has lost urgency. If the latest challenge amounts to a serious threat to the project, there was speculation by some supporters at the press conference that Hansen may be forced to consider either of two sites at the Seattle Center — a Key teardown or upon land occupied by Memorial Stadium — that were considered by the draft EIS as alternates to SoDo.

And then the name of Steve Ballmer, Hansen’s partner in the arena bid who is leaving Microsoft as CEO, came up.

Said one: “All he has to do is abandon borrowing public money and I-91 goes away.”


YourThoughts

  • Stephen Johnson

    Ok, fine. Let’s never get a basketball team then… Happy? One faulty report comes out; bet all those anti arena dweebs are popping champagne and hitting the strip clubs tonight.

    • art thiel

      They would be dweebs if they were celebrating a legal theory and not a judicial decision. And if they’re that dumb, they won’t have the money to make it rain.

  • soundersfan84

    Thiel,

    A couple errors to the study,

    #1 I-91 does not apply to king county only seattle portion of the arena which 120-148m

    #2 The arena is publicly being owned by Seattle which is leased out to Hansen’s group and the NHL group thus the property tax is being replaced by Lease threshold tax

    #3 I-91 only applies in regards of the investment of the 120-148m from seattle for a cash on cash return not any of these lost cash to the city. Since we are talking about debt capacity not direct city funds Seattle is directly providing 0 funds.

    • soundersfan84

      Also for I-91 to actually apply to this deal Seattle has to directly provide the 120-148m not debt capacity, The people doing the study has no idea what I-91 actually is and like i said has NOTHING to do with lost cash to the city that they claim is a subsidy.

      • art thiel

        I think the researchers understood I-91, but because the law is poorly done, there is room to argue about what constitutes an subsidy, particularly if the judge takes into consideration the intent of the law — to make pro sports pay their way without public subsidies.

        • soundersfan84

          The judge can’t rule on intent of the law. He can only rule BASED ON how the law is written. And if the law is so badly written the whole case should be tossed based on a poorly vague law.

    • art thiel

      I presume it was understood that I-91 was city only. But the county is a signatory to the MOU. County has only a small financial commitment, however. Only the city would have the standing to unwind the MOU, which is why the group is lobbying the city council.

      Regarding the lease threshold tax and how that rev stream is accounted for by the city — and whether it violates I-91 — will be a question for the court.

      Regarding your third point, that is the contention of the city regarding its compliance with I-91. The group’s claim is broader, beyond cash-on-cash. Because I-91 is so poorly written, both sides may have some degree of merit, and I suspect that only a court case can determine who’s right.

      • soundersfan84

        The group is trying to claim the MOU is illegal based on the “spirit of I-91″ Not what the darn law says. They lost cause they did not write I-91 to include debt capacity. No one can figure out what the return should be for 120-148m cause its debt capacity. They act as if its city general fund. .

        Again the group will have to redo their study and only include what Seattle is providing not the entire agreement that is my problem with the complaint. You can’t enforce the I-91 on the Entire agreement cause I-91 law does not exist for King county.

  • soundersfan84

    EIS with the two alternate sites has NOTHING to do with funding of the arena. Key arena location will not do since they need the arena while the new arena is being built.

    • art thiel

      If they don’t get a team for 3-4 years, there’s no need for a temp building. And the second alt site at Memorial Stadium wouldn’t require a shutdown of the Key while under construction.

  • CitizenZane

    Anybody spotted Chris VanDouchebag scuffling around this clown?

    • art thiel

      He wasn’t there in person. Certainly in spirit.

  • joe

    Art, No mention of this: Chris Daniels ‏@ChrisDaniels5
    Cleveland Stockmeyer, attorney for group, was lead on I-91 suit. Says he has been working w/Peter Goldman, attorney for Longshoremans Union.

    • art thiel

      That’s all true, and obvious.The attorney doesn’t pretend to be impartial. He’s a hired advocate for the arena opponents. Peter was in the room, as was a rep with the railroad workers who oppose the location. He was doing what attorneys do for clients.

  • giannisee

    Oh, for the love of…let’s get this done…who do I make the check out to?

    • art thiel

      $500M, Payable to City of Seattle Treasury. Four sideline seats at midcourt for you.

  • Marcus

    Calm down folks. The opponents have to create their false narrative and thus this study with a paid shill who has been involved since the beginning and is now wearing a slightly savvier hat. They are going to sue regardless when the final EIS picks SODO, that is inevitable. They will drag, kick, and try to extort giveaways to the Port (and maybe Mariners). That’s what it remains all about ultimately. Based on their recent court track record, I wouldn’t give them great odds.

    • art thiel

      I don’t think getting concessions for the port/Mariners is a part of this, although all the opponents want the same thing. But it may have to go to trial for a judge to rule on whose interpretation of I-91 is correct.

      • soundersfan84

        And you can’t get an interpretation of I-91 cause I-91 can not be applied due to that the public financing is debt capacity. Seattle is DIRECTLY providing 0 dollars cause they do not own the money that is going to be loaned out to Hansen for this arena.

        Hence why SWS is trying to enforce I-91 based on the spirit of law as if Seattle is directly proving the funding.

        I-91 was written based on Seattle actually directly providing general fund money.

  • whaddaya talking about?

    “Stockmeyer was the lead attorney in the group’s attempt to stop the
    city’s draft environmental impact statement authorized by the MOU, a
    claim rejected in September in King County Superior Court as being
    premature because no actions had been taken regarding the arena.” …..Is incorrect. Goldman and Mann were the attorneys, and the client was the ILWU, and the suit was over the MOU and not the EIS. The ILWU has never taken a position on I-91 compliance. Stockmeyer’s suit was over I-91 compliance. The two groups are separate it seems….

    • art thiel

      I believe you’re correct regarding Daniels’ tweet. Goldman and Mann challenged the draft EIS, the I-91 suit was brought by a different group. Both were thrown on on a procedural matter: Nothing has happened yet with the MOU to create the grounds to sue.

      Despite the separate suits, both groups are working toward the same goal.

  • jafabian

    IMHO, Hansen would help his prospects with the city if he had an NHL ownership group alongside him. Despite the NBA saying Key Arena is too small for an NBA/NHL venture they don’t want the NHL here. That just takes away from the NBA dollar. However the city or county probably would be intrigued at getting an NHL team in Seattle since the NHL has never been in Seattle here. (Chris should put up a Seattle Metropolitans 1917 Stanley Cup champs banner in the Key just to remind people) But if Hansen has enough busineses and season ticket holders lined up (especially ticket holders with some clout like Eddie Vedder or Bill Gates) he probably won’t have many issues in Seattle.

    Seems to me Stockmeyer is calling the arena deal financially reckless because it’s for a pro-sports purpose. I don’t get how he can actually spend any time and/or money on this when you have a twice remodeled Key Arena, CenturyLink Field and Safeco Field existing. If the right people want a new arena, it’s gonna happen. Safeco Field is a testament to that. And when it comes to the City Council, well if potential season ticket holders fill up their chambers to voice their desire for a new arena, as they have before, they’ll listen to them moreso than a small group crying foul.

    The issue, as has been before, is getting the NBA to work with the Hansen group. At least when moving the Kings it wasn’t a unanimous vote to keep them in Sacramento. And I doubt the NBA owners are gullible enough to think that Stern doesn’t have something personal with Seattle. (But then, some owners really are an anchovy short of a combo pizza) Can’t help but wonder if the momentum for a new arena hasn’t cooled down now. Also wonder if Ballmer leaving Microsoft might negatively impact this venture as well.

    • art thiel

      I-91 happened in 2007, after Safeco and the Clink were built — and partly because of how they were funded. 74 percent of the voters in that election said they want no more public funding for private sports enterprises. Has little to do with NBA and Hansen, except that their arena deal must comply.

  • soundersfan84

    My last comment on this article. No matter what the MOU says they’ll do what ever it takes to claim its illegal per I-91 even if it meets I-91 based on what the law as written says. They’ll still create funny math and call it illegal. They do not want to admit they lost due to a badly written law.