The Municipal League on Wednesday released a six-page analysis of the Seattle basketball arena proposal, saying the deal is "not risk-free and may not be self-financing as claimed by proponents."
Hedge-fund manager Chris Hansen’s proposal for a new sports arena in Sodo may well be the best deal that city and county officials will ever receive for bringing professional basketball back to Seattle, according to the Municipal League of King County.
But the question, according to the League, is whether the deal is good enough. A civic group with a century-long tradition of promoting good government, the League on Wednesday released a six-page analysis of the proposal, saying the deal is “not risk-free and may not be self-financing as claimed by proponents.”
The report was done for the League by retired City Council staff analyst Bill Alves and former Seattle Post-Intelligencer reporter Jane Hadley.
Hansen — along with Seattle Mayor Mike McGinn and King County Executive Dow Constantine — is proposing a $490 million arena with $290 million in private investment and up to $200 million in public bonds, to be repaid through arena taxes and revenues. The City Council is discussing details of the deal Wednesday and Thursday.
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Calling Hansen’s proposal complex, impressive and delightful to those who still mourn the loss of the Sonics, the League nevertheless raises several concerns.
Chief among them is this question: Will the proposal protect existing tax revenues that go to the city and county general funds, which pay for basic services such as law enforcement and road maintenance?
As the League points out, if sports fans don’t increase their entertainment spending and merely shift it from other activities to those at the new arena, then the city and county general funds will be affected. That’s because all arena-related revenues are to be committed to arena expenses, thus reducing the amount of non-arena revenues the city and county would get for their general funds.
In effect, the League says, sales-tax receipts could be moved from elsewhere in Seattle and King County to arena expenses in Sodo.
KeyArena might also be impacted, the League notes. If a new arena attracts concerts now playing at KeyArena, the city would get a smaller fraction of concertgoers’ expenses, according to the League — again because of the notion that tax receipts collected at a new arena would be dedicated to paying off public debt for arena construction rather than flowing to the city’s general fund.
The League also raises questions about the impact of additional traffic in Sodo, particularly on business at the Port of Seattle. The costs of congestion could be enough to make the project infeasible, according to the League, which recommends more detailed study of traffic impacts than a recent analysis funded by Hansen.
On the subject of financial risks, the League says the best defense the city and county can muster is to make sure that Hansen and his partners don’t ever declare bankruptcy or default on the deal. Key to that is whether Seattle can support professional basketball and hockey teams.
Hansen and the city’s arena consultant Carl Hirsh have suggested that investor-owners, as well as the NBA and NHL, wouldn’t consider bringing teams to Seattle unless they believed the region could support them. But the League notes that it’s not uncommon for the NBA and NHL to approve ownership changes and relocations when teams failed to flourish because of lacking support or local resistance to paying for expensive venue upgrades.
The League calls for far more detailed analysis of the region’s ability to support two new teams, particularly the willingness of local corporations to lease luxury suites and seats.
Finally, the League asks whether the proposed deal would set aside enough money to keep the new arena “first class” through 30 years of improvements. “KeyArena went from ‘first class’ to ‘we can’t play there’ in only 13 years — precipitating the Sonics’ departure,” according to the League.
KeyArena didn’t deteriorate, the report says, so much as it was no longer big enough to accommodate the space deemed necessary for the new standard of arenas. If a region has to replace its arena every 10 to 15 years, it suggests that the new arena’s improvement fund should require annual deposits of at least $20 million. Are investors prepared, the League asks, to provide funding at that level?
If not, and if local governments aren’t willing either, then the “usual fix is to move the franchise to a more cooperative locale,” the League reports. But if the deal includes a non-relocation agreement, financial trouble could rebound to local governments who would be the arena owners and “financiers of last resort.”
On a related note, if the arena only attracts an NBA team, the issue of regional support for two new franchises is less urgent. However, it would mean that the cost of upgrading an arena would fall to a smaller group of investors, which increases the financial risk for the city and county.
“This is a complicated proposal with many moving parts,” the League concludes. “Making it work well will require careful consideration of many choices and details.”
Bob Young: 206-464-2174 or firstname.lastname@example.org