Thiel: Hansen says his deal beats I-91 return


by Art Thiel


Posted on July 11, 2012 at 3:30 PM

Chris Hansen attempted again Monday to make clear that his arena proposal guarantees the city and county will receive a rate of return that exceeds the requirement mandated by I-91.

On his website,, Hansen explains that misunderstanding and miscalculation by the city have obscured the fact that the deal returns seven percent annually to the city, well beyond of I-91's Treasury Bond equivalency requirement, which has been about 2.7 percent.

Some Seattle City Council members, as well as citizen activist Chris Van Dyk, criticized the arena proposal Thursday because they believed the annual return on the $200 million in 30-year construction bonds the city and King County are required to provide the $490 million project was insufficient.

Hansen said that even if two of his proposed incentives to induce public participation were taken off the table -- ownership of the arena's real estate and the "incremental" tax generation that occurs with increased business activity at nearby hotels, bars and restaurants for arena events -- the public would come out ahead.

Hansen and his investors have agreed to cover debt payments, in the range of $14 million annually, by supplementing with their own cash in the form of rent payments the estimated $7 million so that the arena is expected to generate in taxes that will be put into the project.

"Even if we were to use the City Central Staff’s unfounded assumption that the land and Arena are worthless at the end of the lease and that ZERO incremental taxes are created, the return to the City/County is still 7%!" Hansen wrote. "While the (memorandum of understanding) is no doubt complex, the math here is not. If we just divide the $14 million in GUARANTEED taxes and rent the City/County will receive per year by their $200 million investment, we get annual return of 7.0%."

Hansen meant the "we" in this case was the city/county.

Hansen also criticized an idea offered during the city council's finance committee meeting that an additional one percent be tacked on as a "risk premium" to create more revenue to the city above the 5.5 percent estimated interest rate the bonds will bear.

He wrote it was "the result of a very basic finance mistake they made in their analysis – adding the 1% risk premium to the debt service (which, like a 30-year mortgage, includes principal repayment) instead of to the City’s cost of capital (which is the yield on its 30-year debt).

"Thus even under this 'fair value' analysis, had the City Central Staff simply done their calculations correctly, they would have arrived at the conclusion that the Arena Proposal meets this standard."

Hall Walker, the city's deputy budget director who made most of the presentation Thursday, said he read Hansen's four-page PowerPoint explainer, and concluded that Hansen may be correct, but it is only one version of how the numbers can be seen.

"His view illustrates there are a lot of different ways to look at this proposal," he said by phone. "Calling it a miscalculation depends on the interpretation of the language (of the proposal and I-91). I would not characterize it one way or another. Depends on who you ask. The way Mr. Hansen paid it out is a reasonable way to do it. The budget office is ultra conservative on these things, and tries to do the best it can within the financial limits.

"It can get technical very quickly but the bigger picture is a question of policy for the council: Is this a fair deal for city and for Mr. Hansen?"

In a related matter, King County Councilmember Pete von Reichbauer, the panel's most ardent skeptic, has asked King County Prosecutor Dan Satterberg to investigate the legal costs involved in reviewing the memorandum of understanding for the arena. He wants to know how much the prosecutor's office spent on staff attorneys' time and outside counsel, and will seek the same information from the city regarding its costs.

Hansen has said in the past he will reimburse the city and council.

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