Chris Hansen attempted again Monday to make clear that his arena proposal guarantees the city and county will receive a rate of return that exceeds the requirement mandated by I-91.
On his website, sonicsarena.com, Hansen explains that misunderstanding and miscalculation by the city have obscured the fact that the deal returns seven percent annually to the city, well beyond of I-91’s Treasury Bond equivalency requirement, which has been about 2.7 percent.
Some Seattle City Council members, as well as citizen activist Chris Van Dyk, criticized the arena proposal Thursday because they believed the annual return on the $200 million in 30-year construction bonds the city and King County are required to provide the $490 million project was insufficient.
Hansen said that even if two of his proposed incentives to induce public participation were taken off the table — ownership of the arena’s real estate and the “incremental” tax generation that occurs with increased business activity at nearby hotels, bars and restaurants for arena events — the public would come out ahead.
Hansen and his investors have agreed to cover debt payments, in the range of $14 million annually, by supplementing with their own cash in the form of rent payments the estimated $7 million so that the arena is expected to generate in taxes that will be put into the project.
“Even if we were to use the City Central Staffs unfounded assumption that the land and Arena are worthless at the end of the lease and that ZERO incremental taxes are created, the return to the City/County is still 7%!” Hansen wrote. “While the (memorandum of understanding) is no doubt complex, the math here is not. If we just divide the $14 million in GUARANTEED taxes and rent the City/County will receive per year by their $200 million investment, we get annual return of 7.0%.”
Hansen meant the “we” in this case was the city/county.
Hansen also criticized an idea offered during the city council’s finance committee meeting that an additional one percent be tacked on as a “risk premium” to create more revenue to the city above the 5.5 percent estimated interest rate the bonds will bear.
He wrote it was “the result of a very basic finance mistake they made in their analysis adding the 1% risk premium to the debt service (which, like a 30-year mortgage, includes principal repayment) instead of to the Citys cost of capital (which is the yield on its 30-year debt).
“Thus even under this ‘fair value’ analysis, had the City Central Staff simply done their calculations correctly, they would have arrived at the conclusion that the Arena Proposal meets this standard.”
Hall Walker, the city’s deputy budget director who made most of the presentation Thursday, said he read Hansen’s four-page PowerPoint explainer, and concluded that Hansen may be correct, but it is only one version of how the numbers can be seen.
“His view illustrates there are a lot of different ways to look at this proposal,” he said by phone. “Calling it a miscalculation depends on the interpretation of the language (of the proposal and I-91). I would not characterize it one way or another. Depends on who you ask. The way Mr. Hansen paid it out is a reasonable way to do it. The budget office is ultra conservative on these things, and tries to do the best it can within the financial limits.
“It can get technical very quickly but the bigger picture is a question of policy for the council: Is this a fair deal for city and for Mr. Hansen?”
In a related matter, King County Councilmember Pete von Reichbauer, the panel’s most ardent skeptic, has asked King County Prosecutor Dan Satterberg to investigate the legal costs involved in reviewing the memorandum of understanding for the arena. He wants to know how much the prosecutor’s office spent on staff attorneys’ time and outside counsel, and will seek the same information from the city regarding its costs.
Hansen has said in the past he will reimburse the city and council.
26 Comments
Is there a way to get a third party that both of the Councils and the Arena team approve of to referee this I-91 issue, and keep politics out of it from both sides? Chris Hansen wasn’t happy with the City Staff’s read on the issue, and it was clear that City Staff did not agree with Hansen’s interpretation. It would seem like there should be a way to get to a compromise and move along to vetting other aspects of the proposal.
Well, the city Budget Office and the council staff both did reach one conclusion that was the same: it is impossible to apply I-91 as the law has been written to the Hansen proposal.
I-91 as written is worthless law, nobody wants to tell 74% of the voters that they approved a worthless law.
At this point (as indicated in Hall Walker’s deflection) it will come down to how the council feels about the proposal. Do they feel that it is a “fair deal” (they dont know what they mean by “fair” yet). They used the same “feel” criteria with the Seattle Storm lease, then they exempted that deal from I-91.
So, 3rd party to parse the “spirit of I-91” is a pointless exercise.
I agree with you 100% Mr. Baker, but the city council seems to be making an issue of it, I was just trying to think of a way that they could reach a compromise. I think they are going to have to modify something to get Licata and Burgess on board. I am with you though, I think I-91 is worthless and obstructionist. I would like them to exempt this proposal so we don’t have to hear about I-91 anymore.
No-ke, it was a poor word choice to say “cash on cash” but the ballot contained the following text written by the City Attorney.
http://www2.seattle.gov/ethics/vg/20061107/sportsbt.htm
CITY OF SEATTLE
INITIATIVE 91
For-profit Professional Sports Organizations
Seattle Initiative Measure Number 91 concerns property, goods, and services Seattle provides to for-profit professional sports.
If enacted the measure would require that for-profit professional
sports organizations pay the City at least fair value for goods,
services, real property, or facilities the City provides or leases to
them, either directly or through another public entity or a non-profit
organization. The measure defines fair value, based in part on the
rate of return for 30-year U.S. Treasury Bonds. Any Seattle resident
would have standing to file a lawsuit challenging City acts that
allegedly violated the measure.
Should this measure be enacted into law?
Yes
No The actual text went into more detail on “fair value”Sec. 2. Fair value is defined herein as no less than the rate
of return on a U.S. Treasury Bond of thirty years duration at the
time of inception of any such provision of goods or services, real
property or lease; and further, such return shall be computed as the
net cash on cash return, after interest and any financing costs, on
the depreciated value of the cash investment of the City of Seattle
in such goods, services, real property or facility, and shall exclude
all intangible, indirect, non-cash items such as goodwill, cultural
or general economic benefit to the City, and shall also exclude
unsecured future cash revenues.So I think the council is playing it safe by trying to interpret “fair value” as appeared on the ballot because the city saying “Cash on cash doesn’t apply” when they wrote the terms “fair value” is thorny.For what it’s worth, I think it’s helpful to view this as two financial deals. The city issues bonds and is responsible for paying them from the general fund (the tax/rent streams are transferred appropriately but ultimately it’s the city’s obligation to the bonds). Then the city turns around and gives that “cash” to ArenaCo for the arena lease-purchase with the rent and tax payments as the payback.
Is there a way to get a third party that both of the Councils and the Arena team approve of to referee this I-91 issue, and keep politics out of it from both sides? Chris Hansen wasn’t happy with the City Staff’s read on the issue, and it was clear that City Staff did not agree with Hansen’s interpretation. It would seem like there should be a way to get to a compromise and move along to vetting other aspects of the proposal.
Well, the city Budget Office and the council staff both did reach one conclusion that was the same: it is impossible to apply I-91 as the law has been written to the Hansen proposal.
I-91 as written is worthless law, nobody wants to tell 74% of the voters that they approved a worthless law.
At this point (as indicated in Hall Walker’s deflection) it will come down to how the council feels about the proposal. Do they feel that it is a “fair deal” (they dont know what they mean by “fair” yet). They used the same “feel” criteria with the Seattle Storm lease, then they exempted that deal from I-91.
So, 3rd party to parse the “spirit of I-91” is a pointless exercise.
I agree with you 100% Mr. Baker, but the city council seems to be making an issue of it, I was just trying to think of a way that they could reach a compromise. I think they are going to have to modify something to get Licata and Burgess on board. I am with you though, I think I-91 is worthless and obstructionist. I would like them to exempt this proposal so we don’t have to hear about I-91 anymore.
No-ke, it was a poor word choice to say “cash on cash” but the ballot contained the following text written by the City Attorney.
http://www2.seattle.gov/ethics/vg/20061107/sportsbt.htm
CITY OF SEATTLE
INITIATIVE 91
For-profit Professional Sports Organizations
Seattle Initiative Measure Number 91 concerns property, goods, and services Seattle provides to for-profit professional sports.
If enacted the measure would require that for-profit professional
sports organizations pay the City at least “fair value” for goods,
services, real property, or facilities the City provides or leases to
them, either directly or through another public entity or a non-profit
organization. The measure defines “fair value,” based in part on the
rate of return for 30-year U.S. Treasury Bonds. Any Seattle resident
would have standing to file a lawsuit challenging City acts that
allegedly violated the measure.
Should this measure be enacted into law?
Yes…
No…The actual text went into more detail on “fair value”Sec. 2. Fair value is defined herein as no less than the rate
of return on a U.S. Treasury Bond of thirty years duration at the
time of inception of any such provision of goods or services, real
property or lease; and further, such return shall be computed as the
net cash on cash return, after interest and any financing costs, on
the depreciated value of the cash investment of the City of Seattle
in such goods, services, real property or facility, and shall exclude
all intangible, indirect, non-cash items such as goodwill, cultural
or general economic benefit to the City, and shall also exclude
unsecured future cash revenues.So I think the council is playing it safe by trying to interpret “fair value” as appeared on the ballot because the city saying “Cash on cash doesn’t apply” when they wrote the terms “fair value” is thorny.For what it’s worth, I think it’s helpful to view this as two financial deals. The city issues bonds and is responsible for paying them from the general fund (the tax/rent streams are transferred appropriately but ultimately it’s the city’s obligation to the bonds). Then the city turns around and gives that “cash” to ArenaCo for the arena lease-purchase with the rent and tax payments as the payback.
Give Hansen credit for playing along with the fantasy that I-91 could legally be applied, as if the city actually had $200 million dollars to invest (which they don’t, making Section 2 unenforceable, and the law useless).
It’s a legislative embarrassment.
Give Hansen credit for playing along with the fantasy that I-91 could legally be applied, as if the city actually had $200 million dollars to invest (which they don’t, making Section 2 unenforceable, and the law useless).
It’s a legislative embarrassment.
Walker’s question on whether or not Hansen’s proposal is fair to both parties is the crux of the matter. And as patient as Hansen has been, IMO he seems to be repeating himself by always pointing out the financials and rate of return on his proposal. Though maybe that could be interpreted as that he knows that the city is tired of hearing about professional sport teams and their needs. He could sell it better if he had an NHL investor with him and someone from the NBA at least endorsing his project but I don’t see the second one happening any time soon. (Classless bums)
Walker’s question on whether or not Hansen’s proposal is fair to both parties is the crux of the matter. And as patient as Hansen has been, IMO he seems to be repeating himself by always pointing out the financials and rate of return on his proposal. Though maybe that could be interpreted as that he knows that the city is tired of hearing about professional sport teams and their needs. He could sell it better if he had an NHL investor with him and someone from the NBA at least endorsing his project but I don’t see the second one happening any time soon. (Classless bums)
About all this hoorah does is make it even more obvious that Chris Van Dyk is nothing but an obstructionist. Has he pointed out where (in his view) the arena proposal falls short? Has he offered ideas that could help fix that? (no and of course not)
As to ‘is the proposal fair to both parties’? It’s not especially fair to Hansen–it’s a bloody gift from the city’s side.
And what’s up with the Seattle Times? Just who are they in bed with here? Certainly isn’t the local citizens; ST’s agenda, now obvious, of torpedoing the arena and casting innuendo at Larsen, reminds me of the worst examples of Hearstian “journalism”. Did Rupert Murdoch buy the Blethens?
Funny thing is, the PI was the Hearst paper. Though the Times certainly has its own subtle agenda. TNT (and MCClatchy) FTW.
About all this hoorah does is make it even more obvious that Chris Van Dyk is nothing but an obstructionist. Has he pointed out where (in his view) the arena proposal falls short? Has he offered ideas that could help fix that? (no and of course not)
As to ‘is the proposal fair to both parties’? It’s not especially fair to Hansen–it’s a bloody gift from the city’s side.
And what’s up with the Seattle Times? Just who are they in bed with here? Certainly isn’t the local citizens; ST’s agenda, now obvious, of torpedoing the arena and casting innuendo at Larsen, reminds me of the worst examples of Hearstian “journalism”. Did Rupert Murdoch buy the Blethens?
Funny thing is, the PI was the Hearst paper. Though the Times certainly has its own subtle agenda. TNT (and MCClatchy) FTW.
”
If we just divide the $14 million in GUARANTEED taxes and rent the City/County will receive per year by their $200 million investment, we get annual return of 7.0%.”
This has got to be one of the stupidest things Hansen has said yet. The $14 million per year merely pays back the bonds that the City has to sell. All $14 million per year goes to the bondholders. NONE of that $14 million per year is kept by the City of Seattle, so how can anyone conclude that there would be any “profit” in this deal for the City? There is no money left for the city after the bonds are paid off.
Secondly, more than half of the $14 million per year is “direct city taxes” which is pure tax subsidy from the city to Hansen’s investment group (which gets ALL of the revenues from the arena.) This tax subsidy amounts to almost $9 million per year from the city of Seattle. I-91 was written to prohibit tax subsidies from the city to pro sports teams.
The only way this deal would comply with I-91 is if it were done similarly to KeyArena or the Pacific Place Garage, two city-owned facilities. The city sold bonds to pay for these buildings, and used revenue generated by the facilities, NOT INCLUDING ANY TAX REVENUES to pay off those bonds. In the years when building revenues did not cover the bond payments, and the city had to use tax revenues to make up the difference, the city said those buildings were LOSING MONEY.
To comply with I-91, the debt service on the bonds — about $14 million per year in the $200 million bond scenario — would have to all be paid back with rent from the arena, without using any tax revenues. And, an extra $3 million per year in rent would have to be paid by Hansen’s group to give the city the return called for in I-91.
Actually, Leon the income to the bond holders is the interest rate the City and County are able to borrow at, which is less than 3% from what I have heard and about 3/4 of a percentage point below what Hansen’s group could borrow at. The income from the taxes generated by the building, coming in the form of pure users taxes and guarenteed by the investment group, would go to the city and county in varying percentages. Hansen is projecting that income stream to the local governments at 7%. The 7% would not go to the bond puchasers. The interest rate is what goes to them.
http://www.kingcounty.gov/~/media/Council/documents/2012/Arena/05-29_BFM_staff_report.ashx
Pg 53 has the county’s spreadsheet and the 5.5% bond interest rate. The City staff was also saying 5.5% in their recent presentation. It’s a bit conservative but so is the TBill for a return.
”
If we just divide the $14 million in GUARANTEED taxes and rent the City/County will receive per year by their $200 million investment, we get annual return of 7.0%.””
This has got to be one of the stupidest things Hansen has said yet. The $14 million per year merely pays back the bonds that the City has to sell. All $14 million per year goes to the bondholders. NONE of that $14 million per year is kept by the City of Seattle, so how can anyone conclude that there would be any “profit” in this deal for the City? There is no money left for the city after the bonds are paid off.
Secondly, more than half of the $14 million per year is “direct city taxes” which is pure tax subsidy from the city to Hansen’s investment group (which gets ALL of the revenues from the arena.) This tax subsidy amounts to almost $9 million per year from the city of Seattle. I-91 was written to prohibit tax subsidies from the city to pro sports teams.
The only way this deal would comply with I-91 is if it were done similarly to KeyArena or the Pacific Place Garage, two city-owned facilities. The city sold bonds to pay for these buildings, and used revenue generated by the facilities, NOT INCLUDING ANY TAX REVENUES to pay off those bonds. In the years when building revenues did not cover the bond payments, and the city had to use tax revenues to make up the difference, the city said those buildings were LOSING MONEY.
To comply with I-91, the debt service on the bonds — about $14 million per year in the $200 million bond scenario — would have to all be paid back with rent from the arena, without using any tax revenues. And, an extra $3 million per year in rent would have to be paid by Hansen’s group to give the city the return called for in I-91.
Actually, Leon the income to the bond holders is the interest rate the City and County are able to borrow at, which is less than 3% from what I have heard and about 3/4 of a percentage point below what Hansen’s group could borrow at. The income from the taxes generated by the building, coming in the form of pure users taxes and guarenteed by the investment group, would go to the city and county in varying percentages. Hansen is projecting that income stream to the local governments at 7%. The 7% would not go to the bond puchasers. The interest rate is what goes to them.
http://www.kingcounty.gov/~/media/Council/documents/2012/Arena/05-29_BFM_staff_report.ashx
Pg 53 has the county’s spreadsheet and the 5.5% bond interest rate. The City staff was also saying 5.5% in their recent presentation. It’s a bit conservative but so is the TBill for a return.
We’ve seen a guy come in here and try to extort an arena and fleece a city. You don’t try to fleece a city that you’re committing to be an integral part of for at least the next 30 years.
We’ve seen a guy come in here and try to extort an arena and fleece a city. You don’t try to fleece a city that you’re committing to be an integral part of for at least the next 30 years.
Take the City, County, State and Feds out of it.
The Investment group is only 200 million short. Get another investor.
200 million is chump change for Paul Allen.
Taxpayers have no business in this unless of course taxpayers own the stadium, franchise and team.
Take the City, County, State and Feds out of it.
The Investment group is only 200 million short. Get another investor.
200 million is chump change for Paul Allen.
Taxpayers have no business in this unless of course taxpayers own the stadium, franchise and team.