Field of Schemes new post Seattle arena plan relies heavily on TIF subsidies

The city of Seattle, King County, and would-be team owner Chris Hansen released their memorandum of understanding for a new downtown arena yesterday (PDF here), and it looks a lot like the outline released back in February — only much, much more complicated. I'm still trying to decipher some of the more abstruse details of the MOU (such as why Hansen would pay the city $1 million a year in rent on the land under the arena — but only until the arena opens), but here are the main points:

• The entire project, including land acquisition, is priced at $500 million.
• The city will provide Hansen with $120 million: part of it (how much still to be determined, but not more than $100 million) as a lump-sum payment for Hansen's arena land, the rest in annual payments that will escalate at 1% a year for the first ten years. The county, meanwhile, will kick in $80 million — but only if Hansen lands an NHL team as well as an NBA team.
• To help pay off the city's and county's costs, Hansen will pay $2 million a year in rent. In addition, all "sales tax, property tax, leasehold excise tax, and admission tax revenues, as well as other tax revenues attributable to the Arena and Arena Tenant Improvements" will get intercepted before they reach the general fund and used to pay off remaining costs. If there's still not enough money, Hansen will pay additional rent to cover the difference.
• Hansen will cover all remaining construction costs, as well as the operating expenses and the cost of any future arena upgrades.
• Any teams playing in the arena will be required to sign (as yet unwritten) relocation agreements vowing to remain there for 30 years. If an NBA team, it will be called the Supersonics.

That's hardly a horrible deal for taxpayers, especially compared to, oh, I don't know, mortgaging your city's future parking revenues in order to pay for an arena. But it's also not, as King5's Art Thiel calls it, "a loan" because "no new taxes will be sought, nor old taxes diverted."

What it is, in essence if not in name, is tax-increment financing — our old friend TIF: Instead of paying sales, property, and other taxes like a normal corporation, Hansen's teams would get to use those to pay off the public's share of arena costs. Unless every single Neo-Sonics fan comes from outside the city limits and would otherwise be spending their money elsewhere — and all the concerts at the new arena don't diminish sales at the existing KeyArena one iota — this means existing tax money will too end up being diverted for the project, at least if you count "the general fund gets depleted, and an equal amount of tax money goes to pay for Hansen's arena" to be diversion.

How much will the diverted tax revenues come to? That's hard to say, since we don't know how much the arena will end up owing in taxes, nor the interest rate that the city and county will pay on their arena bonds. Assuming a 5% rate on $200 million, though, the city and county's combined cost could come to about $13 million a year — meaning if Hansen pays only $2 million in base rent, the other $11 million would come out of redirected tax revenues. In that case, as much as $169 million out of the $500 million arena cost would be paid by the public.

Now, it could end being a whole lot less than that: Some of the arena tax money would genuinely be new (or at least, siphoned off from neighboring areas); and if tax proceeds are lower, then Hansen's rent goes up, and his subsidy goes down. But even a fraction of $169 million promises to be a problem, because of Initiative 91, which bars the city from spending any public money on a sports facility unless the public gets a positive return on its investment.

Clearly, Hansen's (and the city's) argument will be the same as Thiel's: It's all new tax money, so the public is made whole. They'll have a tough time finding any economists to back them up on that, though, which should make the inevitable city council hearings very, very interesting. Somewhere, Chris Van Dyk probably has his lawyers on speed dial.

from Field of Schemes http://www.fieldofschemes.com/news/archives/2012/05/4953_seattle_arena_p_1.html