Thiel: Van Dyk, I-91 flare anew in arena debate

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by Art Thiel

SportsPressNorthwest

Posted on July 6, 2012 at 8:19 AM

Updated Saturday, Jul 7 at 10:30 AM

Six years after the Initiative 91 vote was looked upon by the NBA as a reflection of Seattle's lack of desire to keep the Sonics, the law is at the heart of a fresh, direct conflict between Chris Hansen and those who want him and his partners to pay more of the $490 million tab for his basketball/hockey arena.

Chris Van Dyk, a principal drafter of the initiative that became law after a 74 percent yes vote in Seattle, told a meeting of the City Council finance committee Thursday that the memorandum of understanding among city, King County and Hansen that is up for consideration "does not meet the simple requirements of I-91. Teams need to show us their money, not taxpayer money.

"If the city plays fast and loose with its meaning, any Seattle resident would have standing to file a lawsuit” to challenge the deal as a violation of the law that requires an annual return equivalent to a Treasury bond, currently around 2.7 percent, in exchange for city investment in pro sports facilities.

Van Dyk's position was a bit of a surprise, since for weeks he was neutral to slightly supportive of Hansen's proposal, calling it "the best one" Seattle has seen. And despite his dramatic, slightly bombastic presentation to the council and the media afterward, he conceded that Hansen's deal "was very close."

I-91, a civic response to new Sonics owner Clay Bennett's demands for a publicly funded arena to replace then-10-year-old KeyArena, became an ordinance that makes mandatory a return "for the value of goods, services, real property or facilities provided or leased by the City of Seattle to for-profit professional sports organizations"  to be "at or above the fair value of the goods, services, real property or facility being provided or leased." Fair value is defined as "no less than the rate of return on a U.S. Treasury Bond of 30 years duration at the time of inception." In other words, the city obligated to make a little money when it transacts with pro sports franchises.

Van Dyk said a return at the current 2.7 percent rate on a $120 million commitment from the city in a lease-purchase of the arena for an NBA team, would amount to $3.4 million annually.

"It's a small portion of the salary of an NBA center," he said.

That may be true, but it would be a large, unplanned hit to the financing plan set up in the MOU.

A snapshot of the 30-year debt retirement plan that calls for $290 million in private capital and $200 million from the city and county as a lease-purchase shows that, for example, in year 3, $14 million will be owed on construction bonds at 5.5 percent.

To pay off the $14 million, the city would return to investors about $7 million in taxes, the county about $500,000, and the rest of the debt would be paid by Hansen's investors, in the form of $2 million in base rent and another $4.5 million in what Hansen calls  "additional rent, " basically cash to retire debt. Hansen and the mayor's office believe it's a fair plan covers the city and makes the arena investment viable long-term.

So finding another $3.4 million to comply with Van Dyk's view of I-91 would be a hard squeeze.

So much so that the Hansen camp created aPowerPoint deck, found here, and posted it Thursday to the sonicsarena.com website that disputed Van Dyk's cllaims, as well as some of the assertions made by the city council staff in documents posted last week found here.

The reader is advised to pour a drink in preparation for a deep document dive. As an alternative, and at risk of severe over-simplification, here's s quick summary:

Van Dyk believes that the law calls for an annual return over and above any "mortgage" to which the city agrees with investors. Hansen believes that since his deal calls for the city to end up owning the arena and the land, the land alone in 3o years -- even if the costs for bulldozing the by-then-antiquated arena are subtracted -- will be worth about $200 million, making for an average annual return of 7.4 percent, greatly exceeding the minimum returned required by I-91.

It was plain Thursday in the discussion among council members and staff that while Van Dyk's contention in the public-comment portion of the meeting was not exactly embraced, mostly because I-91 seems to be silent on the question of whether the 2.7 percent return has to be separate, rather than a part of a greater, return, neither were they eager to put an appraisal on seven acres of land 30 years from now in SoDo as the primary return on the city's risk.

"I don't want to do that," said council member Mike O'Brien.

After the meeting, council member Sally Clark, who has been openly skeptical of the city's return in the proposal, seemed conflicted with the arguments. But then she leaned.

"I don't know," she said. "I realize I could change my mind tomorrow morning. But right now, it seems like breaking even on the deal isn't enough for the city, and it may not be enough for I-91."

The council staff presented three options to the council for consideration regarding I-91.

*Exempt the arena from I-91;

*Determine that I-91 doesn't apply, because it never anticipated the public-private, lease-purchase proposed by Hansen and is silent on whether it constitutes "fair value" for the city's investment;

*Apply alternate "tests" to determine whether the arena is consistent with the "fair value" requirement.

The last is bureaucratese for coming up with a better idea. They offered one: Negotiate a 1.5 percent "risk premium" with Hansen.

Basically that means Hansen would pay more up front over 30 years instead of forcing, say, the 2043 city council to admit that the only I-91 payoff was the seven acres in SoDo that became liquified goo in the 9.0 earthquake of 2040.

The risk of such a disaster seems small -- unless you ask someone from Japan.

In a poll of one council member, Clark, she seemed to like that up-front level of security.

Without knowing whether either the council or Hansen would find such an alternative a plausible negotiation, it could be argued by most rational people that it at least would be enough to stymie the threat of expensive, time-consuming litigation by a Van Dyk acolyte. The extra cash up front is plenty of "fair value."

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