Seattle Council reports raise questions about arena plan's finances

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by CHRIS DANIELS / KING 5 News

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KING5.com

Posted on July 5, 2012 at 1:07 PM

Updated Thursday, Jul 5 at 8:14 PM

The complex plan to pay for a new sports arena in Seattle's existing stadium district would fail to generate sufficient tax revenues to pay back millions in bonds the city would be required to take out to cover part of the project's costs.

That's the assessment of two reports issued this week by Seattle City Council staff.  One, which focuses explicitly on the arena plan's finances, concludes that Chris Hansen and his partners in the project would need to pay an additional $44 million to $120 million in rent over 30 years to cover the shortfall in projected tax revenues.

If the arena is home to both an NBA and NHL franchise, the difference between the amount of tax revenue the arena would raise to the amount of money to service the city's bond debt would total $120 million over 30 years. If the arena is only home to an NBA team, the shortfall drops to $44 million. The difference is tied to the city's required contribution under two scenarios proposed by the arena backers; the city's total responsibility for the $200 million in public debt is significantly less under an NBA-only deal.

Hansen, the lead private investor behind the arena deal, said Thursday that he and his partners believe the city used an "overly conservative" for estimating future tax collections generated by the arena project. Still, he said, "This is why we agreed on the concept of additional rent" to cover shortfalls in debt servicing.

The second analysis reviews whether the financing plan complies with Initiative 91, a 2006 law designed to ensure that the city gets a "fair value" return on any investments aimed at bringing in new professional sports teams.

The authors offer three scenarios for the council to consider: Accepting xxx's "fair value" analysis that the plan meets the I-91 test; exempting the project from I-91 requirements; or concluding that the project doesn't meet the I-91 test and attempting to renogiate the deal to bring the project into compliance.

On this, Hansen struck a more defiant tone, insisting that the I-91 analysis was fundamentally flawed. "It is a fact that the Arena land (which the city will own outright) will have value at the end of the lease which needs to be factored into the return calculation," he said.

In addition, Hansen said "there will be incremental taxes the city/county will receive as out of City/County arena patrons spend money on outside of the arena goods and services (Bars, restaurants, Hotels, rental cars, team merchandise, etc.)."

As such, Hansen said that any analysis that fails to include those two points "is factually incomplete."

"When you add these two factors back in, we believe the return to the City/County is between 7-10 percent per year as opposed to the suggestion that the return will be less than debt service," Hansen said.

Hansen released two documents Thursday responding to the council reports' conclusions: The Arena Proposal is I-91 Compliant and Transaction Details, Security Provisions and I-91 Compliance.

Following the council meeting where the two staff reports were reviewed, Seattle City Councilmember Tim Burgess said that it was clear changes would be need to be made to the arena deal in order to proceed.

“The dedicated tax revenues are not sufficient,” said Burgess. “We’ll have to seek some amendments to the MOU to minimize the city’s risk.”

Burgess said the city could exempt the Arena from I-91 because the initiative is more than two years old, but that the Council was not likely interested in doing that.

Burgess also said he did not believe land values, nor incremental taxes, factored into the return on any investment. 

“My take away is there is a very large risk going forward given the proposal Chris Hansen has presented,” said Seattle City Councilmember Nick Licata.  “We need a fair rate of return and I don’t see that yet.  We’re using tax money to pay ourselves back and that’s not a return.”

“It will have to be amended,” said Licata.

KING5.com's Russ Walker contributed.

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