http://www.sacbee.com/content/news/story/14293893p-15136324c.html
Land deals could offset arena cost, analysis says
By Terri Hardy and Mary Lynne Vellinga -- Bee Staff Writers
Published 12:01 am PDT Friday, August 11, 2006
If a new downtown sports complex is constructed and land surrounding Arco Arena developed, local government would collect more than $542 million over 30 years in taxes and other revenue -- money that would substantially cover the new arena's price tag, a city analysis shows.
The new arena is expected to cost taxpayers between $470 million to $542 million, paid with money from a proposed quarter-cent sales tax increase.
Most public discussions have glossed over one of the downtown deal's potentially biggest money-makers for Sacramento city and county government, schools and local special districts: the sale and development of increasingly valuable land in North Natomas where Arco Arena sits.
The proposed arena deal includes making 185 acres around Arco available for private development, which the city estimates would produce an additional annual $8.3 million in taxes and other payments.
In addition, the city says a bigger arena at the downtown railyard would bring in nearly $4.3 million yearly in taxes and rent payments to local governments, much more than the $1.2 million now generated by Arco Arena.
"The city and the county, the schools and any entity that receives property taxes, will actually be better off," said Sacramento County Supervisor Roger Dickinson, who helped negotiate the arena deal.
State Assemblyman Dave Jones, a leading critic of building the arena with public funds, said the city's figures represent "inflated accounting" because they aren't adjusted for the decreasing value of the dollar over 30 years.
Jones said the city also fails "to factor in the cost of serving any new development (on the Natomas site), which in my experience with residential development, always exceeds tax revenues from that development."
The figures supplied by the city -- compiled at The Bee's request -- don't tell the whole story, said Assistant City Manager John Dangberg. But they are useful in assessing the arena plan.
Sacramento voters will be asked to approve with majority support two ballot measures -- Q and R -- on Nov. 7 that would increase the sales tax and ask if they want the new money spent on an arena and other community amenities.
Getting to a bottom line -- that is, whether the city and county struck a good deal with the Kings' owners, the Maloof family -- is a tricky proposition, finance and policy experts say. Negotiations are still ongoing between the parties.
The city is currently studying what it would cost to build streets, sewers and other infrastructure in the railyard. The arena will be assigned some unknown share of those costs.
Assessing the potential long-term benefits is even more difficult. The arena could be a boon to downtown if it helps jump-start the dormant railyard project. Then, there are the impossible-to-quantify perks, such as a trendier downtown and keeping the Sacramento Kings in town.
"If they're trying to energize development in the railyard, you could actually lose money on the arena and still net money if the larger neighborhood pencils out," said Robert Waste, a professor of public policy at California State University, Sacramento.
"The fair way to evaluate (the deal) is to add up all the known and possible costs and all the known and possible benefits and evaluate how we feel about spending public money on those things," he said.
To examine one aspect of the arena plan, The Bee examined city data on taxes, assessments, rent and fees generated this year from Arco Arena, as well as city projections on the amount of money from the same sources that would flow from a downtown arena and redevelopment of the North Natomas land.
To calculate the long-range numbers, Dangberg used constant 2006 dollars. He also determined a percentage that each type of tax would likely climb every year: 3 percent for utility users and sales taxes and 2 percent for property tax.
The public revenue numbers show that a new arena would generate 20 percent more in sales taxes than at Arco.
"Here at Arco we have a relatively small team store," said John Thomas, president of Maloof Sports and Entertainment. "At a new arena, you'd probably have two stores and much more square footage. Instead of just one concourse, you'd have two, and more concession stands."
In one area, local governments and schools would receive less from a new arena than the current one. Arco and the 85 acres surrounding it are owned by the Maloofs. They pay $700,000 in an in-lieu property tax and $300,000 in Mello-Roos assessments, which repay infrastructure costs.
In contrast, the new arena would be owned by a city-county joint powers authority. As a publicly owned building, the new arena would be exempt from property taxes.
That has generated some controversy. Councilman Steve Cohn said in an interview the public would be better served if Joe and Gavin Maloof held the title to the new arena because they would have property taxes of about $5 million a year.
"Even if you gave the arena away and the Maloofs didn't pay a penny, they'd have to pay $5 million in property taxes vs. $3 million in rent," Cohn said.
Instead of property tax, what is known as a "possessory interest tax" would have to be paid under state law at the downtown arena. That law mandates that if a public building has a private tenant -- like the Maloofs -- the possessory tax is required.
Who pays that possessory interest tax is negotiable; but in Sacramento County it's almost always the tenant, said Kenneth Steiger, Sacramento County assessor.
Under the terms negotiated for the new arena, however, the Maloofs are not on the hook. Instead, the responsibility falls to the public JPA. Dangberg said he estimated the bill would be from $600,000 to $1 million a year.
Arena negotiators said the city and county agreed to pay the possessory tax in order to simplify the arena agreement and get a deal with the Maloofs. The rent they would pay was adjusted during negotiations to cover the possessory tax. "They pay us in their rent," Dangberg said.
The Maloofs would pay $3 million in rent the first year, with the amount increasing 2 percent every subsequent year, for a yearly average of $4 million.
Sacramento's deal is typical, said Dan Barrett, of the Barrett Sports Group consulting firm who represented the city and county in the arena negotiations. "Most teams in the NBA that don't own their facilities don't pay property tax or possessory interest tax."
In California, the only NBA team playing in a publicly owned building is Oakland's Golden State Warriors. The JPA that owns the arena in Oakland pays $472,000 in possessory interest taxes each year, said Pat O'Connell, Alameda County's auditor-controller.
At Arco Arena, a complicated tax situation has developed, causing the Maloofs to actually pay possessory taxes even though they own Arco, said City Treasurer Tom Friery.
Because the Maloofs have a nearly $71 million loan guaranteed by the city, the city actually has a quit claim on the arena, to use in case the Maloofs don't make their loan payments. That means that technically, Arco is city-owned and the building is exempt from property tax, Friery said.
The largest potential public windfall would come from the required sale and development of the Maloofs' 85 acres in North Natomas and the adjacent 100 acres owned by the city. Arco Arena occupies 7 acres.
North Natomas has seen explosive growth in the past five years. Houses, offices and stores now occupy the fields around Arco where sheep grazed not long ago.
Dangberg estimates 80 percent of the property will be developed, with 128 acres going to residential uses and 20 acres for retail. The development would be subject to city approval.
At a minimum, the new development would bring in nearly $8.3 million a year in taxes, Dangberg said.
The Kings' Thomas said the deal, including development of the North Natomas land, promises an "an enormous upside" to local government coffers.
Negotiations are continuing and more details will be known once a memorandum of understanding is reached by Oct. 6.
Sacramento Vice Mayor Rob Fong, one of the arena negotiators, said supporters thus far have mostly talked about the "psychic" benefit a new downtown arena would provide -- evidence that Sacramentans are willing to invest in the cultural life of downtown. He said the figures from the city showed there are more tangible pluses, too.
"There's a dollars and cents benefit as well," Fong said. "Hopefully it will give people comfort that this is really a good idea, an investment above and beyond keeping an NBA team in town."
About the writer: The Bee's Terri Hardy can be reached at (916) 321-1073 or thardy@sacbee.com.
Land deals could offset arena cost, analysis says
By Terri Hardy and Mary Lynne Vellinga -- Bee Staff Writers
Published 12:01 am PDT Friday, August 11, 2006
If a new downtown sports complex is constructed and land surrounding Arco Arena developed, local government would collect more than $542 million over 30 years in taxes and other revenue -- money that would substantially cover the new arena's price tag, a city analysis shows.
The new arena is expected to cost taxpayers between $470 million to $542 million, paid with money from a proposed quarter-cent sales tax increase.
Most public discussions have glossed over one of the downtown deal's potentially biggest money-makers for Sacramento city and county government, schools and local special districts: the sale and development of increasingly valuable land in North Natomas where Arco Arena sits.
The proposed arena deal includes making 185 acres around Arco available for private development, which the city estimates would produce an additional annual $8.3 million in taxes and other payments.
In addition, the city says a bigger arena at the downtown railyard would bring in nearly $4.3 million yearly in taxes and rent payments to local governments, much more than the $1.2 million now generated by Arco Arena.
"The city and the county, the schools and any entity that receives property taxes, will actually be better off," said Sacramento County Supervisor Roger Dickinson, who helped negotiate the arena deal.
State Assemblyman Dave Jones, a leading critic of building the arena with public funds, said the city's figures represent "inflated accounting" because they aren't adjusted for the decreasing value of the dollar over 30 years.
Jones said the city also fails "to factor in the cost of serving any new development (on the Natomas site), which in my experience with residential development, always exceeds tax revenues from that development."
The figures supplied by the city -- compiled at The Bee's request -- don't tell the whole story, said Assistant City Manager John Dangberg. But they are useful in assessing the arena plan.
Sacramento voters will be asked to approve with majority support two ballot measures -- Q and R -- on Nov. 7 that would increase the sales tax and ask if they want the new money spent on an arena and other community amenities.
Getting to a bottom line -- that is, whether the city and county struck a good deal with the Kings' owners, the Maloof family -- is a tricky proposition, finance and policy experts say. Negotiations are still ongoing between the parties.
The city is currently studying what it would cost to build streets, sewers and other infrastructure in the railyard. The arena will be assigned some unknown share of those costs.
Assessing the potential long-term benefits is even more difficult. The arena could be a boon to downtown if it helps jump-start the dormant railyard project. Then, there are the impossible-to-quantify perks, such as a trendier downtown and keeping the Sacramento Kings in town.
"If they're trying to energize development in the railyard, you could actually lose money on the arena and still net money if the larger neighborhood pencils out," said Robert Waste, a professor of public policy at California State University, Sacramento.
"The fair way to evaluate (the deal) is to add up all the known and possible costs and all the known and possible benefits and evaluate how we feel about spending public money on those things," he said.
To examine one aspect of the arena plan, The Bee examined city data on taxes, assessments, rent and fees generated this year from Arco Arena, as well as city projections on the amount of money from the same sources that would flow from a downtown arena and redevelopment of the North Natomas land.
To calculate the long-range numbers, Dangberg used constant 2006 dollars. He also determined a percentage that each type of tax would likely climb every year: 3 percent for utility users and sales taxes and 2 percent for property tax.
The public revenue numbers show that a new arena would generate 20 percent more in sales taxes than at Arco.
"Here at Arco we have a relatively small team store," said John Thomas, president of Maloof Sports and Entertainment. "At a new arena, you'd probably have two stores and much more square footage. Instead of just one concourse, you'd have two, and more concession stands."
In one area, local governments and schools would receive less from a new arena than the current one. Arco and the 85 acres surrounding it are owned by the Maloofs. They pay $700,000 in an in-lieu property tax and $300,000 in Mello-Roos assessments, which repay infrastructure costs.
In contrast, the new arena would be owned by a city-county joint powers authority. As a publicly owned building, the new arena would be exempt from property taxes.
That has generated some controversy. Councilman Steve Cohn said in an interview the public would be better served if Joe and Gavin Maloof held the title to the new arena because they would have property taxes of about $5 million a year.
"Even if you gave the arena away and the Maloofs didn't pay a penny, they'd have to pay $5 million in property taxes vs. $3 million in rent," Cohn said.
Instead of property tax, what is known as a "possessory interest tax" would have to be paid under state law at the downtown arena. That law mandates that if a public building has a private tenant -- like the Maloofs -- the possessory tax is required.
Who pays that possessory interest tax is negotiable; but in Sacramento County it's almost always the tenant, said Kenneth Steiger, Sacramento County assessor.
Under the terms negotiated for the new arena, however, the Maloofs are not on the hook. Instead, the responsibility falls to the public JPA. Dangberg said he estimated the bill would be from $600,000 to $1 million a year.
Arena negotiators said the city and county agreed to pay the possessory tax in order to simplify the arena agreement and get a deal with the Maloofs. The rent they would pay was adjusted during negotiations to cover the possessory tax. "They pay us in their rent," Dangberg said.
The Maloofs would pay $3 million in rent the first year, with the amount increasing 2 percent every subsequent year, for a yearly average of $4 million.
Sacramento's deal is typical, said Dan Barrett, of the Barrett Sports Group consulting firm who represented the city and county in the arena negotiations. "Most teams in the NBA that don't own their facilities don't pay property tax or possessory interest tax."
In California, the only NBA team playing in a publicly owned building is Oakland's Golden State Warriors. The JPA that owns the arena in Oakland pays $472,000 in possessory interest taxes each year, said Pat O'Connell, Alameda County's auditor-controller.
At Arco Arena, a complicated tax situation has developed, causing the Maloofs to actually pay possessory taxes even though they own Arco, said City Treasurer Tom Friery.
Because the Maloofs have a nearly $71 million loan guaranteed by the city, the city actually has a quit claim on the arena, to use in case the Maloofs don't make their loan payments. That means that technically, Arco is city-owned and the building is exempt from property tax, Friery said.
The largest potential public windfall would come from the required sale and development of the Maloofs' 85 acres in North Natomas and the adjacent 100 acres owned by the city. Arco Arena occupies 7 acres.
North Natomas has seen explosive growth in the past five years. Houses, offices and stores now occupy the fields around Arco where sheep grazed not long ago.
Dangberg estimates 80 percent of the property will be developed, with 128 acres going to residential uses and 20 acres for retail. The development would be subject to city approval.
At a minimum, the new development would bring in nearly $8.3 million a year in taxes, Dangberg said.
The Kings' Thomas said the deal, including development of the North Natomas land, promises an "an enormous upside" to local government coffers.
Negotiations are continuing and more details will be known once a memorandum of understanding is reached by Oct. 6.
Sacramento Vice Mayor Rob Fong, one of the arena negotiators, said supporters thus far have mostly talked about the "psychic" benefit a new downtown arena would provide -- evidence that Sacramentans are willing to invest in the cultural life of downtown. He said the figures from the city showed there are more tangible pluses, too.
"There's a dollars and cents benefit as well," Fong said. "Hopefully it will give people comfort that this is really a good idea, an investment above and beyond keeping an NBA team in town."
About the writer: The Bee's Terri Hardy can be reached at (916) 321-1073 or thardy@sacbee.com.
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