The Convergence Plan is mostly a pubicly funded project.

[Larry David]

To some of you the statement above might be obvious. Others will completely reject what I’m trying to explain. But a friend recently made this perfectly clear to me.


For the record, I’m not pointing this out to restart the whole – public funds debate. We are passed that and everybody agrees this project lives or dies with a state vote. When you consider the entire state is paying for a Sacramento asset (the new arena), it affects how you feel about the likelihood of the state vote.


I was trying to explain to him why state could be reluctant to approve the Convergence Plan. After I explained the points from my previous posts, he said, “So, the state is basically financing the new facility.” My first reaction was, “No, the private developer has financial backers down under.” But really, that’s just a bridge loan. The state is contributing the primary asset and a private company - Kamilos - has private investors that will prove the operating cash necessary to fund the project until that profits can be derived from a public asset – Cal Expo.


Maybe everybody already got that, but I’d heard Grant say this project was “privately funded” enough times that I’d failed to grasp the share of the funds that come from a state asset.


For anybody who is still saying “No, that’s not right.” Let’s look at the deal … and to make this simple, let’s take the profits down the road off the table. It just confuses the issue of “where does the money come from.”


We know value of the Cal Expo land far exceeds the Arco location (even this the improvements called for under the convergence plan.)


Thus, we start with Cal Expo (A) – which the state “swaps” for the renovated Arco location (B). Kamilos gets to develop Cal Expo (A), but he’s got to pay for the improvements to Arco (B) and the new Arena (C). Thus for you kids that were good at algebra, A > B + C. But it takes a really long time to see any money from developing Cal Expo. Accordingly, the financing from down under just permits Kamilos to get to that point.


Therefore, this project: (1) is primarily financed with a state asset; and (2) currently doesn’t have the necessary funding. As to the second point, a bridge loan is in place but there is no commitment regarding the primary asset.


To put it another way, let’s assume, your friend: (1) had a big old house on a huge lot with a total value of 500k; (2) was willing to move to a more modern house you found on a lot half the size – worth 400k; and (3) was willing to buy you a 50,000 car for making 10,000 worth of improvements to the new house, finding the new location, and setting up the deal. There is no dispute that: (1) your car would be financed from the sale of the first house; and (2) your “plan” has financing … but the project doesn’t have any financing unless the first house sells. If your friend decides not to sell the first house, you have no plan or financing.


I point this out for three reasons.


First, it helps me explain the likelihood this project fails. For all of the problems that happened at the end, Q and R most likely were not going to pass … because the majority local votes on new entertainment facilities in California fail. I cannot recall any examples of California funding a sports arena. That’s supposed to happen here. So that appears to be a problem.


Second, when you consider the facts above … it makes you realize the “approval” and steps of the city are completely no brainers. The city is essentially saying – “We haven’t been able to get this off the ground for 8 years, but if the state provides the funding mechanism, we are willing to use some of our funds, more state money and our federal dollars for the infrastructure.” Really, you don’t say!

Three, in many ways, the first Cal Expo plan was more likely to pass at the state level. The state wasn't moving spots... they just needed to remake the plot with an arena and a private company could to that for a fee. That makes sense. But why does the state need a 3rd party for a land swap? Is the Arco plot a deal breaker? Couldn't the state just move to another location and (1) keep more money; and/or (2) make more improvements to the new fair grounds. While the first Cal Expo plan was stalled, it might have passed. I'm not sure that's the case now.

 

[Bricklayer]

Three, in many ways, the first Cal Expo plan was more likely to pass at the state level. The state wasn't moving spots... they just needed to remake the plot with an arena and a private company could to that for a fee. That makes sense. But why does the state need a 3rd party for a land swap? Is the Arco plot a deal breaker? Couldn't the state just move to another location and (1) keep more money; and/or (2) make more improvements to the new fair grounds. While the first Cal Expo plan was stalled, it might have passed. I'm not sure that's the case now.

You are entirely missing, intentionally or unintentionally, that the 400k house, the place the state is moving, is being contributed from the other side. Under any other mvoe the State Fair plan, you still have to find a different lot, purchase it with non-existent state funds (unless there is a handy well placed full sized state plot of land around), build it up from scratch, and build all the supporting infrastructure to operate it it, including roads etc. All of that is already taken care of at the old Arco site. Its in a populated area, with good road/freeway access, an existing structure (several I would guess with the practice facility etc.) with surrounding businesses already built up.

It may well fail, but its got to be one of the simplest plans you could have to relocate a State Fair while controlling/minimizing new costs. The state may get the short end of the stick, but the risk is minimized.

 

[Larry David]

You are entirely missing, intentionally or unintentionally, that the 400k house, the place the state is moving, is being contributed from the other side. Under any other mvoe the State Fair plan, you still have to find a different lot, purchase it with non-existent state funds (unless there is a handy well placed full sized state plot of land around), build it up from scratch, and build all the supporting infrastructure to operate it it, including roads etc. All of that is already taken care of at the old Arco site. Its in a populated area, with good road/freeway access, an existing structure (several I would guess with the practice facility etc.) with surrounding businesses already built up.

It may well fail, but its got to be one of the simplest plans you could have to relocate a State Fair while controlling/minimizing new costs. The state may get the short end of the stick, but the risk is minimized.

That's a very good point and it was unintentional (you are always on it). While I didn't put enough weight on what the state gets, I'm pretty sure my math still holds. A > B + C. So even when you contribute the "400k home" and the cost of the new arena, it's still less than the value of Cal Expo. Consequently, the state is really picking up the tab. Thus, while my hypo was poor, I think my thesis holds.

Maybe this isn't a "Wow, Kevin Spacey is Kaizer Soze" shock ... but I didn't realize this wasn't really a private project until I stepped back. Should have seen it, but I missed it. This post is for anybody else in that boat. Not to drag up the public money nuts or kick dirt on this project.

Thanks for keeping me honest.

 

[kupman]

I still say that this is privately funded. If the state decides to sell a bunch of it buildings to generate much needed money and Donald Trump is the one to buy these buildings and then Donald uses the profits generated from these buildings to build a new casino I would not say that California publicly funded the casinos.

A> B+C. I agree with this. However, the owners of "A" cannot afford to run it well. They are pretty much running around with their pants down. This creates a potential bargain for someone else. The state could say no to this, but if they do so on principle alone they may be losing the best chance they have to improve their situation. Does the state lose some on this deal? - yes. But only because they have bit off more than they can chew. That is not the fault of Kamilos or the Maloofs and I hope the citizens of this state realize it.

 

[Larry David]

We know this project is a single transaction – where the primary asset is state owned – and the deal cannot happen if the state doesn’t: (1) contribute that asset; and (2) agree to take a lesser item, which there by permits the arena to be financed. You can interpret it however you like, but the Kamilos/Auzzie financing is just a bridge loan. We know that because – the Kamilos/Auzzie financing doesn’t work without the much larger Expo asset. You can call it what you want, but the fact is … this is really a publicly financed project.


I think your hypo falls short (heck, I did it myself above) – because you describe a sale with an unspecified time between the second transaction. Also, it’s unclear the percentage of pubic and private money. Moreover, it’s unclear whether you’ve assumed Trump could or could not make the deal without the state sale. Thus, you can make the argument that a developer didn’t spin a project out of a redevelopment deal.


Here, there is a single swap. It’s like a three team deal in the NBA. (But there are more than three players.) At one time, the state agrees to exchange A for B +C (plus a profit share on the backend.)


The rest of your argument goes to why the state should do this … and you are correct and I hope a majority of the legislature agrees. But it doesn’t change the nature of the transaction.


Staples Center was mostly privately financed. While there was some public money in the deal, it is a situation where private developers and sponsors put up their own money to pay for the contractions costs. Same with Pac Bell (or whatever it’s called now). They are private projects … because they are comprised mostly of private money. The opposite is true here.


They aren’t calling for that here. And it doesn’t appear Kamilos can make this project work without the state asset.


Instead, the gap in value between A and B – permits Kamilos to finance the construction of C with a bridge loan. Accordingly, the deal doesn’t work without the state agreeing to contribute that “gap” to the deal.


That’s not “private funding”

 

[kupman]

We know this project is a single transaction – where the primary asset is state owned – and the deal cannot happen if the state doesn’t: (1) contribute that asset; and (2) agree to take a lesser item, which there by permits the arena to be financed. You can interpret it however you like, but the Kamilos/Auzzie financing is just a bridge loan. We know that because – the Kamilos/Auzzie financing doesn’t work without the much larger Expo asset. You can call it what you want, but the fact is … this is really a publicly financed project.


I think your hypo falls short (heck, I did it myself above) – because you describe a sale with an unspecified time between the second transaction. Also, it’s unclear the percentage of pubic and private money. Moreover, it’s unclear whether you’ve assumed Trump could or could not make the deal without the state sale. Thus, you can make the argument that a developer didn’t spin a project out of a redevelopment deal.


Here, there is a single swap. It’s like a three team deal in the NBA. (But there are more than three players.) At one time, the state agrees to exchange A for B +C (plus a profit share on the backend.)


The rest of your argument goes to why the state should do this … and you are correct and I hope a majority of the legislature agrees. But it doesn’t change the nature of the transaction.


Staples Center was mostly privately financed. While there was some public money in the deal, it is a situation where private developers and sponsors put up their own money to pay for the contractions costs. Same with Pac Bell (or whatever it’s called now). They are private projects … because they are comprised mostly of private money. The opposite is true here.


They aren’t calling for that here. And it doesn’t appear Kamilos can make this project work without the state asset.


Instead, the gap in value between A and B – permits Kamilos to finance the construction of C with a bridge loan. Accordingly, the deal doesn’t work without the state agreeing to contribute that “gap” to the deal.


That’s not “private funding”

I still respectively disagree. Once Kamilos/Aussie Bank efectively "buy" Cal Expo, the money is now is private hands and they can do whatever they want with that money (less the 25% that goes to th Cal Expo board).

IN the hypo I gave, lets assume that there is no time lag between purchase of state buildings and the opening of casinos. Lets also assume that the new Trump casino is impossible without the profits from his new purchase. The state still did not fund the casino's IMHO.

I get your view point. But I think that just becuase you can trace where the money originated (the tax payers), it would be a stretch to say that the tax payers funded the new arena in this case.

Rest assured, the NIMBYs and CAVE people will make this argument and could likely result in 3 things

1) a state fair that stinks
2) an old arena worth next to nothing
3) a lost opportunity to help downtown

sadly, I think there are some who want this outcome.

 

[kennadog]

Well, that really turns some financing terms on their heads. In finance, "bridge" loan usually refers to a loan that is short term. I haven't dealt with a publicly-funded deal with a bridge loan longer than five years. You could stretch it to ten maybe, but re-development of Cal Expo won't start to turn a profit that soon. The private backers are, indeed, going to be providing long-term financing and Kamilos gets to pay all the costs associated with having that financing for a long time.

First, I haven't seen appraisals on either site, so I don't know how much of a difference in value there is between the two sites. I know one site (Cal Expo) has a lot more acreage than the other, but that's hardly the only consideration in an appraisal. Still let's accept that Cal Expo is "worth" more, as is. Something things are left out of that valuation on both sides though.

The State has to pay for a whole new fair, no matter where they build and with or without this deal. So Cal Expo loses some amount of land value in the swap, but, if the old Arco is usable with the improvements paid for by Kamilos, then Cal Expo also reduces the costs to build the new fair on the Natomas site. They also wouldn't not have near as much in demolition costs at the Natomas site, further reducing development costs for a new Cal Expo. So the long-term financing (bonds) for construction of the new State fair could potentially be reduced by this deal. Less borrowing means less upfront financing costs and less loan interest to pay.

On the other hand part of Cal Expo's value is based on the improvements (structures), which in reality have little to no value to anyone wanting to develop the site for residential and commercial uses. It will actually add costs to demolish all those structures. (I also would not be shocked if there are some toxic clean-up costs at Cal Expo, but I'll leave that out.)

The appraisal of Cal Expo is unlikely to say its highest and best use is as a location for a state fair. It's greatest value almost undoubtedly lies in development for commercial/residential use. So it could be argued that if the State is going to sell, then sell it to the highest bidder. The issue with that is, if you can sell to the highest bidder, where does a new State Fair go? A site that has at least the same infrastructure and accessibility as the Natomas site and with as few environmental issues as the Natomas site is likely to have.

If I trade my $400,000 house with $10,000 in improvements made for your $500,000 house, it may be a reasonable trade based on whatever tangible or intangible benefits may exist for each party and whether we perceive post-swap opportunites/benefits that would not otherwise occur without the deal.

The arena is in no way part of this swap or deal. The deal is done at that point. Now after we make the swap.

So let's say on my side of this deal, I know that I am going to borrow money from a lender to do three things: 1) its going to finance the $10,000 in improvements (Arco improvement) I'm making on the $400,000 house I'm trading to you (Arco), 2) it will allow me to build a $250,000 house for my mother on land my mother owns (new arena), and 3) with the extra land I own, I'm going to build a nice duplex for which I can get a rental income (development of old Cal Expo site).

How can it be argued that that the appraised value difference of $90,000 is a "bridge" loan to me that financed my mother's home and duplex, if you accepted the deal because it had other tangible or intangible values to you that equaled the $90,000? Let's say the $410,000 improved house is much closer to work and allows you and your wife to take mass transit to work, saving you $10,000 per year and giving you more time at home with the kids. Did you really lose $90,000 at all? You thought is was fair and I go borrow money elsewhere. You did not finance my other activities.

The only way it could be argued is on the basis of an appraised difference without taking any other tangible or intangible benefits into consideration. So the legislature will have to be convinced that there are enough value advantages for Cal Expo at the new site that balances out the "loss" of the appraised value.

Bottom line is, the legislature is only going to approve the deal if they feel that all things taken into consideration make it a good deal for the State. In other words it is considered a good "value" trade, based on all factors, not just appraised values. So all work at the Cal Expo site and the arena are indeed privately financed. The State is totally out of the picture after the deal closes. As in most development deals it is Kamilos and his investors who are taking a calculated risk. Make no mistake about it, though, it is a risk, especially developing the old Cal Expo site. Just ask the developers who've gone bankrupt on deals in the current real estate crash or the one in the early 90s. The State won't be bearing any of that risk, so I'd hardly consider them a lender of a bridge loan.

If the State decides that it's a "fair" swap, then no "bridge" loan exists and it is indeed Kamilos' investors that are providing private financing for everything that happens after that swap. People that may be against that forget that there is no money to taxpayers at all unless Cal Expo is sold to someone. Then you have no fair. Maybe that's what some people want, I don't know.

 

[Larry David]

Reply to Kupman


Kamilos isn’t buying Cal Expo. This is a land swap. Most of what the state is getting is not cash, but improved land at another location with deferred money to finish the fairground (don’t forget) the state is most likely getting one big building, a parking lot, and a dirt lot … the end for a while. Until they start seeing the money on the backend, it’s more Spartan than Cal Exop. Moreover, if the “power that be” attempt to characterize your project as you do … the case made to the state legislature is actually much worse. Both the type of transaction and price will be a huge problem – if this is a “sale.”

First the type of transaction. They purposely made this a land swap and not a sale to: (1) make the numbers work for Kamilos; and (2) make the deal palatable to the legislature. Right now the state is contemplating selling several state properties (and the independent state budget office is trying to get them to stop calling it short sighted. ) However, for each of those properties – there is a RPF where multiple bidders are competing in order to obtain the highest possible purchase price … and, in the event the price doesn’t pencil out, the state might not sell a particular property. To accommodate your characterization of the transaction, you would have to make this a no bid sale – where the state took considerably less than the current value of the property now and – even when you factor in their share of the future profits – less than current value. If you want to call this a no-bid sale for less than market value to paper over the public financing component, you can … it just makes the Convergence Plan much less likely to pass. Try selling that to a representative from Redding, San Diego, or Bakersfield during a legislative session where everybody is watching the bottom line intently.


And if it’s a sale, the deal probably doesn’t work if it isn’t a no bid sale. Assuming Cal Expo is worth A, Kamilos has to bid somewhere south of 90% of A (probably a lot less). Kamilos has to bid less because he needs to: (1) construct the arena and renovate Arco; and (2) make enough profit on the back end to (a) entice the state that the 25% share has value; and (b) compensate the Maloofs, who are contributing the Arco property. Thus, if this become open to bidding … Kamilos is most likely outbid by developers that don’t intend to build both an arena and fairground. Those other developers can pay more, because their costs are significantly lower.


Thus, it’s not a “no bid sale” it’s a “land swap.” If you start going down your road, this transaction becomes much less palatable to the legislature. So beyond the fact that I disagree with your characterization of the deal, I’ve got a pretty strong feeling that the “powers that be” would say ‘Oh, don’t call it that.”


Second, if it’s a sale … then the price really matters. We are going to have to play fast and loose with the numbers, but ultimately they don’t “matter.” (Even if you change them, you’ll see my point. That sounds ludicrous now, but walk with me … and then play with them. ) You can see my point . (First, let the fully acknowledge that I’ve got no clue here and I’m throwing numbers at the wall). Except for the acres, these numbers are made up.

Cal Expo has 350 developable acres (bigger … but lets only focus on the land that matters.) The Arco location is approximately 188 acres. Thus, from the outset it’s much less valuable than Cal Expo. Moreover, even apples to apples (in terms of acres) the Cal Expo land is more valuable (location). So we know it’s less. Let’s say, even with the renovations to Arco, it’s 50% less. (Even if you think it’s 65-75%, you’ll still see my point. And I can show you what that can’t be the case)


We’ve kept using A > B + C. (So let’s change it a just a little and roll not just the arena and Arco renovation into C, but all of Kamilo’s expenses – transactional, interest, ect.) With the numbers and scale of this project, I’ve got no idea if that’s 3% or 30%. For the sake of showing how this deal works, let’s just throw out 20% to make this expensive. (If you are more knowledgeable please feel free to help fill them in – or just redo the final equation). I’m just black boarding to show how this works for the state.

So we know, A is 100, B is 50, and C is 20%. So … 100 – 70 = 30. So there is still 30% of the profit to carve up, and the state gets 25% of that or 7.5. Therefore, at the end of the process … using purely conjecture numbers … the state gets about 58% of the value of Cal Expo for this sale/land swap. 50% in the new fairgrounds and 7.5% in deferred profits used to improve/complete the fairgrounds.

Even if you really work the number over, the state is going to get a lot less than the current value of Cal Expo. Let’s slash the expenses down to 3% (it’s a big project, right?) That opens up another 12% in profits. If you give the state their share of that, the state gets up to 61%. (I’m not discounting the improvements, they are pretty minimal. It isn’t going to cost a fortune to spilt Arco.)

There is another way to sweeten the state’s pot, which doesn’t affect the profits. We can assume the Natomas land is much more valuable. Perhaps 70% of the value of the Cal Expo after Arco is modified into two split floors. Now, you’ve got the state’s share up to 81% … not bad … and you emphasize the fact the state is both incapable and unlikely to improve the fair without jumping on this one time opportunity.


The problem is – that cannot be the case. Because the Maloofs just got hammered. They own about 95% of the Natomas land. Under the math above, the Maloofs just contributed 66.5% of the total cost of the project in order to avoid the total costs of 3%, to get an arena and an unspecified amount of the 44% of profits to be divided among three parties. And that’s before they pay rent.


Doing this right now, I just realized the state is going to get back somewhere between 60 and 80% of Cal Expos value – to get a plot ½ the size with one large expo hall. Realistically, the share doesn’t change much … just whether it’s in the value of the new fairgrounds or ¼ of profits.


Ugghhh, my efforts to disagree with Kupman’s characterization of the project just bummed me out. (Pulls eject handle)

 

[kennadog]

Ugghhh, my efforts to disagree with Kupman’s characterization of the project just bummed me out. (Pulls eject handle)

Wait, you have to answer my post first, then eject!

The State legislature specifically created a Cal Expo Authority to give it the proper legal standing to issue bonds to finance reconstruction. That happened well before either of the Cal Expo deals were introduced as possible ideas to get an arena done. If Cal Expo decides to move forward at the existing site, without an arena, that's how it will be financed. They still have the right to raise funding that way, although selling bonds has been a bit of a challenge in the recent economy.

Oh and it may simplify things, but acerage is hardly all that goes into the valuation of a piece of property. So you cannot use that to the value of one piece of property is a lot higher than another. (That's before you consider that a big chuck of the Cal Expo site goes unused for any purpose, but must still must be insured, maintained and policed by the State.) And if C is the arena, then that has really nothing to do with the land swap between the Cal Expo and Arco.

 

[allrightythen]

I understand why you would say its being funded by the public, but its definitely not so in the traditional sense. No government agency is borrowing money or raising taxes to fund it. The state is definitely taking on some risk here, but worse case scenario they end up with a better state fair location and nothing else. Best case scenario is they turn a profit and come out ahead on the deal. It appears to me to be more of an investment opportunity than a public works project. So if you squint the right way it can be considered a "publicly funded" project, but a publicly funded project that has nearly zero impact on taxpayers doesn't appear to be an issue to me(and those words are usually scary for me). If Cal Expo is not on the state's "for sell" list then Brick was exactly right that the risk for the state is very small.

 

[Emma]

Doing this right now, I just realized the state is going to get back somewhere between 60 and 80% of Cal Expos value – to get a plot ½ the size with one large expo hall. Realistically, the share doesn’t change much … just whether it’s in the value of the new fairgrounds or ¼ of profits.

Two halls. The training facility (which is pretty freakin' cool) stands on the land as well and I assume it would be included.

 

[Larry David]

Wait, you have to answer my post first, then eject!

The State legislature specifically created a Cal Expo Authority to give it the proper legal standing to issue bonds to finance reconstruction. That happened well before either of the Cal Expo deals were introduced as possible ideas to get an arena done. If Cal Expo decides to move forward at the existing site, without an arena, that's how it will be financed. They still have the right to raise funding that way, although selling bonds has been a bit of a challenge in the recent economy.

Oh and it may simplify things, but acerage is hardly all that goes into the valuation of a piece of property. So you cannot use that to the value of one piece of property is a lot higher than another. (That's before you consider that a big chuck of the Cal Expo site goes unused for any purpose, but must still must be insured, maintained and policed by the State.) And if C is the arena, then that has really nothing to do with the land swap between the Cal Expo and Arco.

Just when I think I’m out they pull me back in.

You are right on the first point, but it operates under the assumption that the state: (1) has a long term plan for Cal Expo; and (2) doesn’t dramatically shift course between plans from time to time. The state allowed them to raise funds, but there has been no progress on that point. Moreover, the state often changes their minds on this type of stuff. For example, let’s spend money to build offices so we don’t pay rent … then, ah let’s sell some of these buildings we just paid off. The state could leave Cal Expo as is – they’ve let it linger for a long time. They could see the property and develop a much smaller location (say in another town). They could simply add the property to the “to sell list” and move the fair to another town – say LA. You are totally correct, but your post has a hint of – if not A, then B. When working with the state, it often doesn’t work that way. Option F comes flying out of the woodwork and becomes law fairly quickly.

As for the size of Expo, the Bee story was very clear there are 350 developable acres at Expo. Thus, we’ve already cut off the area next to the river before we did the math. Accordingly, even saying they are apples to apples (for the sake of argument) it’s almost twice as big. We know that. The second thing is – the land at Expo and Arco are not apples to apples. While they are both “close to downtown” and both have problem areas nearby, there are not equal. I’m not going to belabor this point because I don’t have hard numbers to back it up … but if you ask around the Expo area is move valuable. Sure, you have to clear more at Expo … but it more than pencils out. That’s why Kamilos is willing to do all this stuff. It’s a much much better trade.

Finally, before my last post C was the cost of the arena and the improvements to Arco. Later, it became all of Kamilos’ costs. The costs – particularly the amount – is relevant because the state has a share of the future profits. Accordingly, the state will need to see that math and it will affect their vote.

As we’ve shown above, the costs affect the states share – ie the citizens of the state’s return on Expo. If the costs are high, there isn’t much profit to carve up. (If the costs are low, the State still doesn’t see 75 cents on the dollar) Therefore, “C” has a direct impact upon the amount of money the state receives for Cal Expo. Thus, it has a lot to do with the land swap – not “nothing.”

 

[Larry David]

Look, I’m not going to belabor this point … because ultimately it doesn’t matter very much. (Moreover, I wasn’t here to debate this point, merely forward a relevant point to others. I’m willing to bet that happened at least a few times.) But taking the tangents, spin, and everything else off the table – these four truths remain the bones of the deal.

1. A > B + C
2. This project never gets started unless the state agrees to trade a more valuable asset for a lesser one. The deal cannot happen without the state trading down. It cannot.
3. While they will get a more modern fairground, at the end of the deal the state’s asset will be less valuable than the one they started with. The gap is so large there are still profits to split (from the initial state trade down) after all of the costs are recouped. This thing rolls along on state dollars. It’s just does.

4. The landswap is one large transaction with many moving part, where the state has an economic interest on the front and end and back end of the deal. (Their 25% of the net profits of the gap.)



Nobody dispute the first three, and that alone is enough to demonstrate this project cannot happen without the state agreeing to “downgrade” a state asset. Because I know that statement will devolve into another tangent, I will briefly explain. The new fairgrounds may become “nicer” down the road, but it will never be better on a balance sheet. That may not matter to you right now or ever, but it matters to the people who vote in the legislature. While both projects would improve Sacramento, the land does not belong to Sacramento. It’s equally owned by Susanville, Hanford, and Indo. They are supposed to look at this long term, including the possibility the state may later need to sell these properties or need the acreage for a non-leisure activity.

Almost all of the emphasis on changing the nature of the transaction has been an attempt to make this a “sale” and/or argue the state isn’t involved after the initial transaction. The fallacy in that argument is … this is one transaction. Moreover, the middle part of the transaction – the arena - directly affects the state’s share of the transaction. Finally, the deal was set up as a single swap, with many moving pieces, to prevent opponents from calling this a no-bid-sale.

While there may be a benefit to the state, a private developer has approached the state and said, “If you trade down one public asset, I can get you a smaller but more updated; based upon the difference in values I will also construct an arena, and once those costs are paid off, you will share in the profits (again based upon the difference between the first and second state assets.) That’s the deal. It cannot start without a public asset and it relies primarily upon that asset … for the duration of the project.

All I’m saying is – this is mostly a public project. If you want to ignore the math and/or just call it something else … feel free.

 

[Emma]

1. A > B + C

Excellent points Larry David, now I'm gonna delve into Kings fans' madness.

Here's a trick I learned in college algebra that demonstrates the importance of paying attention in math class, as it pertains to the real world (just watch)

A>|B+C|
A>-(-B-C)
-A<(-B-C)
C-A<-B
A-C>B

Because of implications made, people can never be absolutely sure of what really belongs on each side of the inequality.

Spoiler

(I totally made that up, I'm not even sure I performed the math 100% correct. I just thought I'd try to apply some math to the devil's advocate's reasoning too )

 

[Larry David]

That was great!

 

[kennadog]

I'll believe they sell those State office buildings when I see it. The State sells off personal property all the time. (Cars, equipment and furniture, for a few,) However, these items have short term useful lives. It's something else to sell off actual real estate. I worked for the State for 25 years and I can't remember them selling off any significant real estate.

It would be like selling my house so I could pay off consumer debt. Certainly takes care of my debt problems, but then where am I going to live and how much will it cost me? Now I have to rent, which provides a minimal tax benefit and costs more almost every year (or five or ten years, if I have a lease, which the State would.) The whole idea of the State owning those new office buildings is they would not have space costs that they have no control over. The landlord is going to charge what the market will bear, regardless of his/her costs.

The reasons for building those is still valid. Selling them now gives the State a short term influx of money (I don't know if there's any debt to pay off.) On the other hand, keeping them will likely save money over the useful life of the building. Over 30 years or more, the land is almost guaranteed to be worth significantly more as is conveniently located

At this point selling those buildings is a short-sighted solution to the problem of deficit spending. If the State wants to sell property it deems it doesn't need or that isn't beneficial to the State or the public, that would be different.

By the way, I don't feel I was off on "spin or tangents," if that comment was directed to me. The fact is, this deal is more complex than a simplified A, B, C formula. Motives in any development or real estate deals are not driven solely by money. There are a vast array of goals parties want to achieve in a deal, whether you are choosing what house to buy or you are involved in a major, three-way land swap.

I don't think I've ever seen a real estate deal where the final decision made wasn't based on factors other than price and where their weren't trade-offs, where the buyer is getting only some of what they want (the seller, too). They're just trying to get as many of the benefits they want, at the lowest price. Maybe that means living on a busier street, so you can afford the house near better schools.

Cal Expo hasn't sold bonds yet, only because they haven't decided on a final plan. They can go to CDLAC anytime to request bond authority. Its just not something you do until you have a plan.

 

[allrightythen]

Larry,

I think its completely fair to say its mostly publicly funded, but to me it seems like the only reason to really use that language is as a scare tactic. Admittedly the term "publicly funded" in California makes me cringe, but the nature of this one doesn't really bother me. I can see opponents of the project saying that it is being funded by the state (and it would be mostly accurate), but again it's not doing so by raising taxes or putting the state deeper in debt. I guess my only real point is that I think calling it publicly funded should be qualified because its not the traditional type of public funding. I appreciate the information since I really hadn't thought of it this way and it caused me to do a bunch of reading up on the project. At this point I'm cautiously optimistic that something will get done without costing the taxpayers much.

One of the main questions I've pondered is the actual risk the state takes on in this swap. Clearly they trade down, but if Cal-Expo wasn't on the selling block and they weren't planning to move the state fair any time soon, isn't the deal a trade up in some ways? I'm not saying it makes up for the value disparity or anything, just that if state officials had no plans to move the state fair then in this deal they get to keep it local, get better grounds, and get the potential of some profits from Cal_Expo's development. In this scenario they take the loss on value, but its a better deal then standing pat.

 

[Larry David]

Larry,

I think its completely fair to say its mostly publicly funded, but to me it seems like the only reason to really use that language is as a scare tactic. Admittedly the term "publicly funded" in California makes me cringe, but the nature of this one doesn't really bother me. I can see opponents of the project saying that it is being funded by the state (and it would be mostly accurate), but again it's not doing so by raising taxes or putting the state deeper in debt. I guess my only real point is that I think calling it publicly funded should be qualified because its not the traditional type of public funding. I appreciate the information since I really hadn't thought of it this way and it caused me to do a bunch of reading up on the project. At this point I'm cautiously optimistic that something will get done without costing the taxpayers much.

One of the main questions I've pondered is the actual risk the state takes on in this swap. Clearly they trade down, but if Cal-Expo wasn't on the selling block and they weren't planning to move the state fair any time soon, isn't the deal a trade up in some ways? I'm not saying it makes up for the value disparity or anything, just that if state officials had no plans to move the state fair then in this deal they get to keep it local, get better grounds, and get the potential of some profits from Cal_Expo's development. In this scenario they take the loss on value, but its a better deal then standing pat.

I'm not trying to scare anyone and I'm for this project ... I'm just not sure if it will pass. The public really isn't a factor on this one. Except locally, with all of the budget votes and the cuts/fees that are coming this summwe ... this isn't an issue where a rep is going to need a lot of input from back home. He/she is going to do what they assume they want and/or what is best for the state. So the public "matters" but nobody is going to campaign for or against locally before the vote. Kamilos and probably Steinberg will make their pitches and it will either pass or fail.

However, the part that makes you cringe ... that will be on the reps mind. They know an opponent could run on it, if you are in Anaheim or San Jose ... you realize a no vote might get you a team, you might think the state has no business in the arena game, you make think your city should come first, say San Diego or LA for football, you may think this is a bad deal for the state fair (and that case can be made.)

The point is not to rile up the locals. Hell, if the state wants to help fix our problem ... great. Even Dave Jones wouldn't be too fired up about that. However, the fact that this is mostly a public project ... will matter to some of the people with votes. That's my only point and I'm trying to educate Kings fans on that ... not rile up the no public funds folks, who don't even read much here.

 

[allrightythen]

I'm not trying to scare anyone and I'm for this project ... I'm just not sure if it will pass. The public really isn't a factor on this one. Except locally, with all of the budget votes and the cuts/fees that are coming this summwe ... this isn't an issue where a rep is going to need a lot of input from back home. He/she is going to do what they assume they want and/or what is best for the state. So the public "matters" but nobody is going to campaign for or against locally before the vote. Kamilos and probably Steinberg will make their pitches and it will either pass or fail.

However, the part that makes you cringe ... that will be on the reps mind. They know an opponent could run on it, if you are in Anaheim or San Jose ... you realize a no vote might get you a team, you might think the state has no business in the arena game, you make think your city should come first, say San Diego or LA for football, you may think this is a bad deal for the state fair (and that case can be made.)

The point is not to rile up the locals. Hell, if the state wants to help fix our problem ... great. Even Dave Jones wouldn't be too fired up about that. However, the fact that this is mostly a public project ... will matter to some of the people with votes. That's my only point and I'm trying to educate Kings fans on that ... not rile up the no public funds folks, who don't even read much here.

I know you wouldn't have any reason to scare anyone, I just think the only time it would matter is when battling from a purely ideological standpoint, in this case it probably wouldn't even matter until reps starting defending their votes. I really do appreciate the info.

I hadn't thought about reps voting against it just to get a shot at getting the Kings to move to their area. I could see San Jose or maybe a few southern CA reps doing so, hope its not significant.

 

[fansinceday1]

Good conversation.

Ive felt that this deal was too complicated and would probably not happen because the state would come out on the short end of the stick. There is no way to explain that away. Arco is half the size and the land surrounding the current cal expo is much more valuable than what surrounds Arco. Larry threw in another big potential wrench that I completely missed. Why would the rest of the state really care if the Kings left? Why would a state rep put themselves in a position to have to explain to their constituents why they voted for something that doesnt make any sense for the state as a whole?

 

[kennadog]

While I agree that this deal is complex and could easily fall through, I can't understand why voters don't get more upset over billions if federal, state and local money that goes to private businesses all over the country, every day. You'd think that an arena was the first time. I've worked in agencies that award loans and grants to private businesses day in and day out.

The Hyatt, Embassy Suites and Sheraton in Sacramento all got some public funding (especially the Hyatt). I work in an agency that gives partial funding to private businesses and famer's has for decades.
Many private businesses have contracts with public entities, that make up a substantial portion of their revenue. It helps keeps them in business.

Bewtween our regular programs and the stimulus funds, we've kept many a contractor in business and paying wages to their workers, when there were few if any construction jobs available.

The rail yards is projected to be provided $1 billion in public suibsidy funds. I don't see any mass protest.

It just seems silly to me to protest about public money being spent on this one project.

Heck, the city built the convention center which was a much riskier deal than the arena. Of course, the city owns it and owned all the loses for quite a while, too.

 

[Larry David]

Your question seems to be why aren’t people as fired up about other public/private deals and the merits of some local deals. My thoughts as to why they aren’t as fired up.

1. Many voters aren’t aware of those issues … because there aren’t widely reported. However, there are people who advocate against sports arenas and that gets press. Plus, the sports arena is going to make the news anyhow, and the public component is simply part of the story. Thus, more people are upset. Most people aren’t upset about things they aren’t aware of.

2. Arenas with public subsidies are a hot button issue in CA. Has been for at least 20 years. Will be going forward. It’s just a political reality.

I agree isn’t not consistent, but you can say that about a lot of things in politics. At this point, you just have to accept it and move forward.

I think there will be some reps that are concerned about an opponent lobbing the “spending state money to build Sacramento an arena” grenade. Not a ton, but some. Nobody is going to run on that issue – heck, with the cuts coming down this summer it’s a mole hill. Really, not in the same neighborhood. But you could play some combination the “spending/cuts,” “back door deal,” and “He’s out of touch with ____ and more concerned about what happens in Sacramento” cards. Are those completely misstated, irrelevant, and misleading … yes. Would it help if you lobbed it into an ad or mailer? … probably. Thus, it’s a factor. It’s clearly in play. How much? Anybody’s guess.

You can say that is shouldn’t matter but it does. You just have to accept that and hope for the best. Like we’ve said a lot of times, there are opposing views on this issue … but really we are passed what the citizens of Sacramento think on this point. (At least on this threshold vote) It’s up to a vote by the state legislature. Our local votes are locks, the others nobody knows.

 

[kennadog]

Actually, I know what you say is true. I just feel like the Maloofs have been painted to look like evil money grubbers, out to bilk the government. I know all the anti-arena arguments that are going to be part of the whole process. There will certainly be plenty of mud flying before this is over.

Honestly, I'm on the pessimistic side at this point. I have a tiny smidgen of hope, that I'm clinging to for dear life. Sadly, civic improvement in Sacramento seems more about what is cheap, than what will enhance the city and make it a more appealing place to visit and live in. That goes beyond the arena issue.

 

[Larry David]

Good conversation.

Ive felt that this deal was too complicated and would probably not happen because the state would come out on the short end of the stick. There is no way to explain that away. Arco is half the size and the land surrounding the current cal expo is much more valuable than what surrounds Arco. Larry threw in another big potential wrench that I completely missed. Why would the rest of the state really care if the Kings left? Why would a state rep put themselves in a position to have to explain to their constituents why they voted for something that doesnt make any sense for the state as a whole?

Funny. He puts it a better way in much shorter form. If I'm a state rep in San Diego, I: (1) I don’t really have a horse in this race. The state fair is never going to make money (they will spend extra revenue on improvements) and my constituents don’t attend the fair or Kings games; (2) practically, I get no political gain from voting for this and my constituents are not going to be upset if I vote against it; and (3) I might have only handful of locals that are upset by my “yes” vote right away, but with the right amount of press or a savvy political opponent, the vote could be a political liability.

Since they are going to cut services and raise fees – every incumbent is shaking in their boots and trying to minimize political liabilities to stick around.

I’m not saying everybody isn’t inclined to vote for this, but that logic is both sound and a problem.

 

[BMiller52]

Who cares if it's publicly funded. I just want a dang arena. I don't give a darn whether it costs idiots here in California an extra $1, or whether the state fair gets screwed, or whatever. All of the idiots who are against this are cheap selfish morons who don't know what's good for them to be honest. This would create jobs for Sacramento, it'd make it a better place to be, a more popular place, it'd keep the most important thing Sacramento has here for another 20-30 years, etc. As long as it looks like it's NOT publicly funded and we can trick some people into not being against it, that's fine with me. I just want an arena, and I don't care how we get one.

 

[Larry David]

The post above is the inverse of what you would read in the comments section of the Bee. We have finally found someone to debate those people. Two man enter, one man leave.

 

[stevetaebo]

Who cares if it's publicly funded. I just want a dang arena. I don't give a darn whether it costs idiots here in California an extra $1, or whether the state fair gets screwed, or whatever. All of the idiots who are against this are cheap selfish morons who don't know what's good for them to be honest. This would create jobs for Sacramento, it'd make it a better place to be, a more popular place, it'd keep the most important thing Sacramento has here for another 20-30 years, etc. As long as it looks like it's NOT publicly funded and we can trick some people into not being against it, that's fine with me. I just want an arena, and I don't care how we get one.