Several Seattle City Council members say they aren't convinced the proposed Sodo arena would meet the requirements of Initiative 91.

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Seattle Mayor Mike McGinn has repeatedly said the proposal to build a new Sodo sports arena with $200 million in public financing meets the requirements of Initiative 91, which demands a financial return on any investment of public money.

But several Seattle City Council members aren’t convinced an agreement with San Francisco hedge-fund manager Chris Hansen to build a $490 million arena and return professional basketball and hockey to the city would in fact provide such a return.

“If you believe that I-91 requires a fair return on the public investment, this proposal does not do that,” said Councilmember Tim Burgess, chair of the Government Performance and Finance Committee, after the hearing to review the 2006 initiative with city budget staff.

Councilmember Nick Licata agreed. “There appears to be a real gap in their argument that we’re getting a return on our investment.”

After the hearing, McGinn reasserted his view: “The city’s investment will be fully repaid, with principal and interest at a rate that exceeds the return on a Treasury note. In addition, the city will own the land and the arena.”

Council President Sally Clark questioned the value to the city of a 30-year-old arena at the end of the deal, noting the Kingdome and KeyArena were viewed as obsolete before their public bonds were paid off.

“Great, we own another arena at the end of 30 years. Fantastic. Will this be construed as a great deal that we owe another arena?” Clark asked.

The five council members at Friday’s hearing said they remained open to learning more about the proposal and how it might satisfy I-91. That was in contrast to statements made earlier this week by Councilmember Richard Conlin, who declared his opposition to the public financing of an arena and predicted it would not be approved.

Conlin was not present for Friday’s hearing.

Under the proposed agreement reached in May among Hansen, McGinn and King County Executive Dow Constantine, the city and county would issue bonds for up to $200 million to purchase land in Sodo where the arena would be built.

Hansen’s investment group, ArenaCo, would make annual payments to the city equal to the annual debt service on the bonds. The revenue for the payments would come from taxes generated by business at the arena.

Deputy Budget Director Hall Walker said the interest and principal ArenaCo would pay to the city are more than the city could earn investing the same amount in a U.S. Treasury bond. I-91 defines a fair return as the rate of return on a Treasury bond, currently about 2.75 percent.

But according to I-91, the city must make a “cash on cash return, after interest and any financing costs.”

“We invest $200 million; we get $200 million,” said Burgess. “A real-estate investor would expect a return of 5 to 6 percent.”

Walker said the proposal doesn’t call for a strictly “cash on cash” exchange because the city would be issuing bonds, not using cash from the general fund. But he said the city believes the proposal still satisfies the spirit of I-91.

“Whether the cash comes out of the general fund or whether it’s from bonds we just sold, it’s still money from the city,” Clark said.

Councilmember Mike O’Brien, who holds an MBA and previously worked as a chief financial officer for a law firm, seemed the most confident the arena proposal meets I-91’s provisions.

“My take-away is that, by the letter of the law, this deal would qualify. Under the spirit of the law, it also passes the test,” O’Brien said.

He said ArenaCo’s debt payments to the city would equal about 5.5 percent interest, a better return than from a 2.75 percent Treasury bond.

But he said a Treasury bond represents a nearly risk-free investment, while it’s not clear what risk the city would incur in the arena deal.

“What I-91 is silent on is risk,” O’Brien said. What if something went terribly wrong? he asked. “What are the chances of that happening? How much does that cost us?”

One of the architects of I-91 shared the City Council members’ misgivings.

If the city bonds are paid back with city tax revenue, “they’re paying us back with our own money,” said Chris Van Dyk, who helped draft the initiative and was a co-founder of the group Citizens for More Important Things, which opposed tax breaks for sports facilities.

Van Dyk said he has nothing but respect for Chris Hansen and the publicly named members of his investment group, Steve Ballmer and Peter and Erik Nordstrom. And he said I-91 “was never meant to be a deal breaker.”

But he said the intent of the initiative was that the return on investment go toward the common good, such as funding for police, fire protection and other city services.

He said he’s not opposing or supporting the agreement with Hansen, but, “I’d ask the proponents to make explicitly clear that I-91 is being met. How much of their own money are they putting into the lease payments, into the capital fund? This is an extremely complex deal, but the answer is simple,” Van Dyk said. “Show us your money.”

Lynn Thompson: 206-464-8305 or lthompson@seattletimes.com. On Twitter @lthompsontimes.