Q&A: Sorting out Sacramento's arena puzzle

The party's over.

Practically giddy over the Kings' decision to stay in Sacramento, political and business leaders are beginning to wrestle with the tricky task of finding money for a new arena.

It's a puzzle with no obvious solution, particularly with the economy weakened and much of the citizenry skeptical. If there's no deal in place by next March, the NBA says it will support the Kings if they want to leave.

Here's a guide to the issues at hand:

How much will a new arena cost?

Read more: http://www.sacbee.com/2011/05/14/3626171/qa-sorting-out-sacramentos-arena.html#ixzz1MLBeeMBS
 
I don't get the cynical tone you are talking about except maybe the first line.

I think the arena is doable. My question is what happens to the land PBP sits on? Can it be sold or redeveloped? The city owns the rail yards and it sits generating no revenue. So there are assets that can be sold or developed to raise revenue.

So we need 35mil a year. The Maloofs say they can pay 10 mil but that includes what they pay for PBP. I think 15 mil might be more realistic. Then there's the ticket sir charge 10 mil. What about all the other events besides basketball? The city won't profit on those? That could be the other 10 mil right there. Add some of the increased properly tax revenue and a hotel tax and it seems doable.
 
There's no cynicism in The Bee article - just reality. Very well laid out presentation of new arena hopes and pitfalls well known - but maybe not fully digested. No mention of CWebb investors plan to relieve Maloofs of their $70+ million loan burden to city - which would help greatly in getting more participation from ownership.
 
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Filled with usual cynical tone from the Bee....

Yeah I picked up on the cynical tone. But the funny thing is that working through all those numbers, it almost sounded like they had promising sources for most of the 35 million a year they projected would be needed. Dale Kasler writes the ticket surcharge alone could provide about 1/3 of what is needed. But then he dismissed all of these sources as a fraction of what was needed. Yeah fractions go up to 2/3, 3/4, 9/10...

And a penny for adding to hotel, car rental (transient) taxes could be horrible in Orlando. They have been a tourist spot for 40 years. They've been to that well more than a few times and the fight to get there is tough. But Sacramento has been historically low on those transient taxes anyway. So if it only generates 2 million at a 1 cent increase, make it a 2 or 3 cent increase to close that gap. It's not like it will put the Sacramento tourism in a bind here. They are already lower than most cities of it's size and will always be lower than those tourist destinations. And face it, we really don't have tourists here. It's mostly business and government travel.

The fact is it can be done and yes the fire department will still put out fires and police will still chase bad guys. Not building a new arena doesn't alter the cities ability to provide services. In fact it will bring in new tax revenues and help support those services.
 
Siranthony - 'I think the arena is doable. My question is what happens to the land PBP sits on? Can it be sold or redeveloped?'

PurpleHaze - 'No mention of CWebb investors plan to relieve Maloofs of their $70+ million loan burden to city - which would help greatly in getting more participation from ownership.'

During the Cal Expo fiasco, there was talk about a firm (Vision Maker?) putting an amusement park on some/all of the Maloof and city land in Natomas. Is it possible that a deal could be brokered where Webber's investment group could get the land in exchange for relief of the debt and then in turn work with that other firm to put an amusement park out on the Natomas land? That other firm, if I remember correctly, was willing to put up a good chunk of change to develop the park. I would think together Webber's investors and that other firm could make a deal workable. Webber's investors replacing the Cal Expo board as partners.

If a park could be developed, it could also have a "surcharge" on its tickets to help pay for the arena development. This would also help minimize the economic loss in Natomas caused by the arena no longer being there.
 
Yeah I picked up on the cynical tone. But the funny thing is that working through all those numbers, it almost sounded like they had promising sources for most of the 35 million a year they projected would be needed. Dale Kasler writes the ticket surcharge alone could provide about 1/3 of what is needed. But then he dismissed all of these sources as a fraction of what was needed. Yeah fractions go up to 2/3, 3/4, 9/10...

And a penny for adding to hotel, car rental (transient) taxes could be horrible in Orlando. They have been a tourist spot for 40 years. They've been to that well more than a few times and the fight to get there is tough. But Sacramento has been historically low on those transient taxes anyway. So if it only generates 2 million at a 1 cent increase, make it a 2 or 3 cent increase to close that gap. It's not like it will put the Sacramento tourism in a bind here. They are already lower than most cities of it's size and will always be lower than those tourist destinations. And face it, we really don't have tourists here. It's mostly business and government travel.

The fact is it can be done and yes the fire department will still put out fires and police will still chase bad guys. Not building a new arena doesn't alter the cities ability to provide services. In fact it will bring in new tax revenues and help support those services.

I'm with you on this one. The more I read the article, the more this whole arena thing sounded doable. The facts were laid out in basic terms. The people involved will be more creative to squeeze out every dime.
 
During the Cal Expo fiasco, there was talk about a firm (Vision Maker?) putting an amusement park on some/all of the Maloof and city land in Natomas. Is it possible that a deal could be brokered where Webber's investment group could get the land in exchange for relief of the debt and then in turn work with that other firm to put an amusement park out on the Natomas land? That other firm, if I remember correctly, was willing to put up a good chunk of change to develop the park. I would think together Webber's investors and that other firm could make a deal workable. Webber's investors replacing the Cal Expo board as partners.

If a park could be developed, it could also have a "surcharge" on its tickets to help pay for the arena development. This would also help minimize the economic loss in Natomas caused by the arena no longer being there.

Move the Sacramento Zoo there. The zoo needs a major expansion and the residents won't allow it at it's current location. This would be easier than luring a amusement park company to the area.
 
$30 million a year for 30 years? Why does a $350 million arena cost $900 million over 30 years? I know that there are interest payments on the bonds or whatever money is fronted to build the place plus you have maintenance, security and other miscellaneous costs but I don't see how it comes to $900 million. Is it possible that was a typo and they meant $300 million over 10 years with the Maloofs, private investors and tourist taxes covering the rest of the money?
 
Yeah if this was easy, it would have been done a long time ago. But I don't think it's just impossible. I wish I knew more about what Webber and his group were doing with the restructure of the original bonds. They really can't be paid off in bulk without a 9 million penalty. So a nice key would be restructing that and getting them out of the equation. Hopefully that group Webber mentioned is working on a deal to take the bond debt on in exchange for Maloof owned land and the city owned land in Natomas. Remember there is moe land out there than just the arena. The old stadium land is owned by the city. The problem is there is a building moritorium out in Natomas due to required levee upgrades for flood protection. Which holds land value down until all that is sorted out. But the arena land is goign to be occupied up until a new building is in place anyway and that could be 3-4 years from now. And the building moritorium could be lifted by then I'm sure. We can hope that land value increases is enough to make that deal work long term.

If that can be worked out, then the burden of the lease/bond payback will be off the Maloofs hands in a few years time and when the new arena opens. Then they can contribute direct lease payments on the new building instead of paying back the bond debt. So that is another big chunk of cash in the arena puzzle.
 
$30 million a year for 30 years? Why does a $350 million arena cost $900 million over 30 years? I know that there are interest payments on the bonds or whatever money is fronted to build the place plus you have maintenance, security and other miscellaneous costs but I don't see how it comes to $900 million. Is it possible that was a typo and they meant $300 million over 10 years with the Maloofs, private investors and tourist taxes covering the rest of the money?

That 900 million payback does seem rather loan shark like for fronting 350 million.

Doing simple math, 30 years of payments of 30 million dollars means that they are paying about 10% yield on those municipal bonds. Depending on their A, AA, AAA rating, it should be much lower in the 5-6 % range. That changes that 30 million a year down to no more than 20 million a year. A rated municipal bonds are doing 6.05 yield today. I can’t see where 10% comes in?
 
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Move the Sacramento Zoo there. The zoo needs a major expansion and the residents won't allow it at it's current location. This would be easier than luring a amusement park company to the area.

The idea of luring an amusement park company there is from the Cal Expo plan. In that plan, There was a firm (Vision Maker?) that was willing to develop the Natomas land as an amusement park with something along the lines of 100-150 million dollars. I am sure getting the land basically free was a huge reason for their interest but they indicated that an amusement park would likely be successful at that location . Cal Expo would've gotten use of the park for the couple of weeks that the State fair ran. I don't remember all of the other details.

My interest was whether that portion of the failed plan could be tweaked where private investors could be brought in, reduce the debt obligations of the Kings allowing them to contribute more to the new arena and also be a possible source of additional funding long term. Since there appeared to be a workable deal with this amusement park company with the old plan, new negotiations wouldn't be from scratch.
 
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I sent an email to the Bee writer Dale Kasler. His source was an economist from Pepperdine. His numbers assumed a 9% yield give or take. I don't follow the muni bond market closely. But that sounds like too high of a number used for muni bonds for even a poor rating.
 
I sent an email to the Bee writer Dale Kasler. His source was an economist from Pepperdine. His numbers assumed a 9% yield give or take. I don't follow the muni bond market closely. But that sounds like too high of a number used for muni bonds for even a poor rating.

That's very high unless he was taking into account tax free status for people in the highest bracket and this would be the effective pay off.
 
I sent an email to the Bee writer Dale Kasler. His source was an economist from Pepperdine. His numbers assumed a 9% yield give or take. I don't follow the muni bond market closely. But that sounds like too high of a number used for muni bonds for even a poor rating.
That is high. While true that, say a 7% bond is actually worth more than 7% to the investor, because its tax free, that doesn't affect the payment being made. I wish I could find a 9% muni bond right now. I'd be in seventh heaven.

I would not have used just one source if I was the reporter. I would have checked with at least 3 financial experts. Too much chance of a bias with ony one source.

However, even a 7% bond would mean about a $28 million a year payment for $350 million. If a part of the financing is from a private lender(s), then the interest rate on that portion would be higher than the muni bond, because the interest is taxable. It definitely would help this situation if Webber's people could refinance the current city debt. It might be at a higher interest rate, but with the re-amortization it might be over a longer term, lowering payments. My question would be, how long would the term of a private loan be? Commercial loans don't usually have anything close to a 30-year term.
 
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I sent an email to the City of Sacramento Treasurer and investment department. Hey they could answer!
Bonds can be a complicated thing for my feeble mind to understand. But I'm sharp enough to ask more questions when something doesn't sound right.
 
I posted this but they won't approve it, oh well.

We cannot not build an Arena until we have real solutions for the real problems facing this city. I want answers and I want them now. Who has the solutions to the problems? We cannot tax the citizens to build a facility which will house a sports team that doesn't benefit the city in any way possible, not one, you name it, I'll counter with "High gas prices, food costs, housing market, unemployment, not enough new government buildings to rent out to know one and teachers, please more teachers, we all know that new teachers means smarter children, please!" So there, got you and now you can take your money that you've collected and go to Thunder Valley and gamble it, go, now, what are you waiting for!

There I said what needed to be said. The truth behind it is that Sacramento is the cause for the Nations problems. High gas, check, food costs, check, education, check, not enough police, check, fire stations, check, bad roads, check, damn that Kevin Johnson, he did all these things and it's because he spending all his time on this Arena, sad excuse for a government leader.

If we stop these NBA people from what they started and put our tax dollars (you do want to get taxed still, right? With or without the Arena) to good use we'll have enough money to solve all of the problems. If Kevin Johnson raises taxes he could virtually save the planet as long as there isn't a darn Arena anywhere near downtown Sacramento.

We'll have new teachers teaching students smartier things, yes, I said it, that's a word the new teachers will use because are kids will be geniuses unlike you've ever seen thanks to the mayor. Police that will literally guard your front door at night. Firemen that'll actually do some real work for that $65,000 a year. New government buildings that will attract so many businesses that we'll be overrun by tourist because the new courthouse has a new Subway beside it. Can you imagine how not building that new Arena will save the city. The gas prices will plummet, the food cost, well, food will be practically free and did I mention, NO NEW TAXES, not a one, you'll love it, this Arena topic is a blessing in disguise, you have no idea.

I cannot wait until people see that new government building that we'll rent half the space out, generating no money into the economy and having two fast food places and gas station near it, woooo, cannot wait for that grand opening, who's with me. Maybe they'll put one of those new police men to stand by it all day and just walk around not doing much but hopefully he was educated by one of the new teachers so that way he's super smart, yes, can't wait.

Did you know that, wait, you don't want to know do you, do you, okay I'll tell you. Did you know that your money that you pay towards the city, called taxes, did you know that it's pre-spent, what, you didn't know, you thought every new dollar goes towards a new project, really? Oh, well I'm sorry for ruining that for you. Okay, this is how it works, pay attention because the new teachers will be teaching this in the new school that make kids smarter then those lame *** run down schools that the teachers are well paid to take a 3 month vacation but teach like crap, pay attention. All tax dollars are pre-spent, thats right, already going towards projects either in effect or waiting in line for there turn. Yup, I know, shocker, I know you want more police, buildings, firemen, karate classes and a copy of P90X but you'll have to wait. The city can only do so much at a time, did you want them to just take your new tax dollars that they would give (not give and not all but help with some) to build an Arena to fix what YOU want overnight, if you did then I want to see what your eating for breakfast to start your day, must be some good stuff.

The people that always say, "The city is broke" no, it's not, there's a difference between Portugal and Greece broke and Sacramento broke. Sacramento broke = moneys all tied up. We need more to keep new projects running and by doing that we'll have to tax you or cut your job, which do you prefer, oh, no new taxes, well then. I read this, "I don't want new taxes but if it means not building an Arena then I'm all for it as long as I see results". You'll never see results, you'll never know where your money is going, how it's spent, spent on and it'll never directly effect you, never. They'll pave a new road in mid-town with current employees that buy new materials to make a smooth road. Where'd the economy grow there, not sure. They'll hire 12 police to patrol South Sacramento but you won't know, you won't dare go there, too dangerous. The new teachers you want, they'll just be rehires at crappy pay and they'll ***** and want more money and get laid off again and they'll hire cheaper teachers and you'll complain of the quality of education because we know that poorly paid teachers are dumb, right. No, you'll never know because your money that you pay every week is already spent, months in advance.

The city is like a business, you need to spend money to make money. The problem is that the current projects/divisions/sectors and so forth and eating up all the money and the projects waiting in line aren't getting there turn and other projects are stopped half way because we need to feed the machine called government to keep it happy before we can continue on with our current/new/waiting projects. So don't assume that because they don't build an Arena that Sacramento's problems, MAGIC, fixed, easy solution.

Arena = new jobs, roads, buildings, businesses, consumers, property taxes, and just maybe it'll make some money for the city. Your thinking, no, we have to use that money to pay for the Arena. Really, you think that. You think that the city will tap all it's resources to pay off the Arena every year for however long the deal is for. You don't think, "Hey look, the Arena made us $60 million, we need to pay down $30 of it and the rest gets pumped into the local economy". No, you think they just pay it all back at once, your one of those smartier kids aren't you.

I know, your thinking, "Your a moron, the Arena will only create short term jobs with no long term benefits" Good one, didn't think of that did I. Why not have the NBA pay for it and the Maloofs and just have them make all the money why we just collect property tax, that's all we need. We don't want to generate any money out of a state of the art entertainment facility, there is no way the city want's any part of what will be the biggest attraction in the city, stupid people, thinking we'll waste tax dollars on a project that makes a profit.

According to studies by some well known Universities, new Arena's do not mean new profits. According to studies by my neighbor, he said the same thing because like the Universities, he doesn't run a city or have any detail on the money in and money out, he just want to appear smart and theres always an opposition.

If you don't like the idea of the Arena then there is no problem with that but if you think not building it is a smart idea and it'll someone solve th problems in which Sacramento has and forced upon the nation (damn gas prices) then your (Fill in blank here).

Your smart, don't want to have any new taxes for it and hate the notion that rich people will throw a leather sphere into a hole to entertain people, please, what is your solution, not on the Arena but everything. Oh yes, play in the current venue, thats not a bad option. It'll drive the team out of town, create no new jobs, no revenue for the local economy (especially Natomas) and people will lose jobs, but what's wrong with Arco, Lady GaGa likes it, right?

So if you feel that it's a bad idea then give me a solution that'll fix all your concerns and keep the team or maybe you don't really care about the team and just want to be taxed for something you'll never see the light of day produce to verify your tax dollar at work.

A new Arena is not a $30million dollar new high rise for current employees to move into something nice an shiny. It'll be there, you won't notice it, you won't have any say or anything to do with it and it won't boost the economy around it any more then it's at already. You'll just wondering how it got there and not knowing that it a project in line waiting for your tax dollar to be spent on a building that won't benefit you in anyway and you'll never know.

Think about the long term effects of the Arena and the economical growth in and around the area it is in and national attraction then tell me how a new courthouse will do the same for the cities wallet.

So tell me, I'm waiting.
 
My email got bumped up to Russell Fehr and I got what amounted to a no comment and it's all premature. What it tells me is that yes it is premature, but also that the mayor has the staff on public comment lockdown mode when discussing arena finance. I can't blame them I guess. One thing I have learned is that the rate will entirely depend on how reliable, predicatable or risky the revenue payback stream will be. So they could have a higher rate due to the public opinion that general sales tax was taboo. They were probably better off with the quarter penny sales tax back in 2006.
 
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