The Seattle City Council has reached a tentative agreement with Chris Hansen to build a Sodo basketball arena, with some tax revenue paying for area transportation improvements.

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The Seattle City Council has a tentative agreement with investor Chris Hansen to build a $490 million state-of-the-art basketball and hockey arena in Sodo — and make road improvements with a cut of the tax revenue.

The deal, sources say, addresses objections by the Port of Seattle and manufacturing interests, who complained that traffic generated by an arena would choke already clogged Sodo streets, jeopardizing maritime industries and jobs.

“This may be the deal that gets us to where we need to be,” said Dave Gering, head of the Manufacturing Industrial Council, which represents 60 businesses in Sodo, including the Port of Seattle and BNSF Railway.

The agreement, expected to be announced Tuesday, significantly strengthens financial protections for taxpayers in the event of default or bankruptcy by the arena operators, and it requires a state environmental review and an assessment of alternate sites before final legal documents are signed.

It also funds improvements to KeyArena and a study on the future of the aging Seattle Center facility, which could face obsolescence if a new arena opens. And it can require that Hansen buy the arena and land for $200 million after it’s paid off in 30 years, protecting the city from owning a potentially obsolete structure.

The City Council Government Performance and Finance Committee will hold a hearing and vote on the revised agreement Thursday. The deal would then go to the full council, and city sources said there are six votes in favor of the deal, enough to pass it later this month.

The agreement would revise a Memorandum of Understanding announced in February among Seattle Mayor Mike McGinn, King County Executive Dow Constantine and Hansen, a Seattle native who approached the city more than a year ago with a plan to build an arena and return the Sonics to the city where they played for 41 years.

That deal called for up to $200 million in public financing to be repaid with taxes generated by arena activity and rent from the future teams.

Under the revised agreement, $40 million of the tax revenue would instead go into a fund to make road improvements to protect Port of Seattle container operations, railway lines and truck activity, much of which now occurs within blocks of the proposed arena site. That money would be made up by Hansen’s group.

Port Commissioner Tom Albro said a transportation fund could address some of the Port’s concerns, but he cautioned that until a detailed environmental review is completed, the full impacts of an arena won’t be known.

“Is it enough? Will it actually maintain a working waterfront? That’s the question,” Albro said.

Another $7 million in tax revenue would go into a fund to improve KeyArena and plan for its future, city sources said.

Much of the original framework of the deal remains. Hansen will contribute $290 million in private money to build the arena. He also must secure a National Basketball Association franchise before the city or county issue construction bonds.

The city contribution might rise from $120 million to $145 million to finance the transportation fund and KeyArena improvements, but it all still would be repaid by Hansen under the agreement. The county would contribute $80 million if a National Hockey League team is secured.

City sources said the council believes Hansen’s business plan will succeed even with the added debt load.

Hansen’s low-key style and his modest Seattle roots — he was raised in Rainier Valley and graduated from Roosevelt High School — as well as his willingness to invest substantially in the new arena, generated goodwill from thousands of sports fans who rallied to the cause and stridently denounced opponents.

A wealthy hedge-fund manager and an early investor in Facebook, Hansen, 44, said he’d watched the SuperSonics as a boy and dreamed of returning the franchise to the city. Over the past year, Hansen has spent more than $51 million buying properties just south of Safeco Field.

The Metropolitan King County Council on July 30 approved the original deal with only a few changes. But hours before the vote, eight of nine Seattle City Council members said they wouldn’t support the deal unless it included substantially more public benefit.

McGinn’s office responded that it was a mistake to risk losing Hansen’s offer: “We think it’s a good deal as it stands.”

Since then, a City Council team led by Council President Sally Clark, Tim Burgess and Mike O’Brien has directed negotiations with Hansen’s team.

“I welcome the news that the City Council has decided to support bringing basketball back to Seattle,” McGinn said late Monday. “… The City Council was the last piece of the puzzle. We haven’t gotten a team yet, but Sonics fans have a reason to smile today.”

To date, the mayor’s office, council and city attorney’s office have spent more than $614,000 on sports consultants, attorneys and financial analysts to help the city negotiate a deal. Hansen will repay those city costs if the project is approved.

Political skirmish

The City Council’s renegotiation of the deal represents a rebuke of McGinn, who began secret negotiations with Hansen in June 2011 and notified council members only a day before The Seattle Times reported on the negotiations with Hansen in December. McGinn also didn’t consult with key stakeholders, including the Port, the Seattle Mariners or the Manufacturing Industrial Council, which emerged as the biggest arena opponents because of traffic issues, the threat to the Port’s $3 billion in annual marine cargo operations and the potential gentrification of city industrial lands.

“Those people didn’t talk to anybody. They never understood what was at stake down here,” Gering said.

McGinn and arena backers argued that the difficult traffic conditions around the stadium district existed before Hansen’s proposal and that he shouldn’t be responsible for fixing them.

They also promoted the deal as the most favorable public-private partnership ever offered the city for a new sports facility.

An Elway Poll in May found that a majority of city and county respondents supported a new arena but more than 60 percent also said it should be privately financed and that there should be no risk that any public money would be needed to pay for it.

Objections also were raised by backers of Initiative 91, overwhelmingly approved by Seattle voters in 2006, which said the city must make a profit on any investment in a sports facility.

City sources say that the revised deal, which directs $47 million to transportation and KeyArena improvements, meets the initiative’s requirements.

This is a step in the right direction,” said Chris Van Dyk, an author of the initiative who questioned whether the original arena deal satisfied the spirit of I-91.

In June, Hansen revealed three investment partners with deep Northwest ties: Microsoft CEO Steve Balmer and Peter and Erik Nordstrom. That reassured the public about the financial strength of the investment group, but many remained skeptical as the cash-strapped city readied to seek property-tax increases for libraries and its crumbling seawall.

The deal approved by the County Council called for an economic-impact analysis on the arena to be completed within 90 days, but otherwise was substantially the same as that negotiated between Hansen and the two executives.

And the county faces less risk. If no National Hockey League team is secured, the county will contribute only $5 million.

The County Council will have to vote on the revised agreement if it is passed by the city. “I look forward to seeing the agreement. It touches directly on the challenges that have been raised by the community from the beginning,” said County Council President Larry Gossett.

Transport boost

The agreement now directs $40 million in tax revenues into a fund to study and prioritize transportation improvements in Sodo. The city and county hope to get additional funding from the Port, with a goal of leveraging federal money for additional transportation improvements.

The fund is significantly less than the $180 million estimate to build a Lander Street overpass for freight, but it could tackle some projects.

Financial protections in the deal include increased audit capability to give the city notice if there are financial problems with the teams or ownership groups.

The revised agreement also says that a state environmental review, including an evaluation of alternate sites such as Seattle Center, must be completed before any construction or transaction documents are signed. That doesn’t mean Sodo won’t be the ultimate location, but it does mean Hansen would have to pay for mitigation, such as traffic and pedestrian improvements, City Council sources said.

Lynn Thompson: 206-464-8305 or