On Thursday, September 13th, the Budget Committee voted 7 to 0 (I abstained) to support the Memorandum of Understanding (MOU) with Chris Hansen that will guide the process toward a final agreement to build a new basketball arena in the Stadium Overlay District abutting the industrially zoned SODO district.
Aside from my philosophical belief that government should generally avoid the use of public resources to augment private investments, my practical concerns with this proposal, as with other similar proposals in the past, has been to minimize the risk of a financial loss to Seattle’s budget, which could affect our ability to provide other services to our citizens.
THIS CAN HAPPEN IN 3 WAYS
First, if the public debt incurred to finance this project is not covered by the Arena’s revenue stream; this could be triggered either by bankruptcy or the team moving.
Second, if the general business climate is negatively impacted, and thus less revenue to the city as a whole. This would be most evident if the Port, manufacturing and freight mobility are constrained in doing business and providing jobs.
Third, if the city is burdened with additional costs for maintaining the Seattle Center due to the elimination of operation of Key Arena as a profitable venue.
Let me go further in describing how each has been addressed in the MOU.
THE FIRST WAY – REVENUE FALTERS
With regards to the possibility of bankruptcy, the personal financial guarantee of Chris Hansen is groundbreaking and perhaps unique. In checking with Neil DeMause of the Field of Schemes website, and economist Roger Noll of Stanford University, both of whom are experts in stadium funding, neither have heard of any owner providing such a guarantee.
We need to make sure that financial guarantees cover both the basketball and hockey teams. In the last 40 years no NBA team has gone bankrupt; however, over half of all professional sport team bankruptcies have involved hockey teams. I want to make sure we are covered for that possibility as well and it appears that the final version of the MOU took that possibility into account by rolling it into the obligation of the Parent Company that will have responsibility over the entire operation.
We have to prepare for all events. We cannot count on the past as fixed guide to the future. There is always a first time; for instance, our own Seattle Pilots in 1970 were the first major league team to file for bankruptcy.
With regards to the team moving, I believe we have strong guarantees in place with a requirement for a 30-year non-relocation agreement, which past lease agreements with the Sonics did not include. The duration of the agreement coincides with the length of bond payments; a 5-year discrepancy between the duration of bond payments and the lease for the Sonics at Key Arena was problematic. The Mariners have a similar requirement, though it is not strictly non-relocation; they are required to play games at Safeco Field. The arena MOU includes this requirement as well.
THE SECOND WAY – OTHER BUSINESSES ARE HURT
This issue comes down to location. In essence, will our manufacturing, maritime and warehouse businesses be restrained from growing and providing jobs for our citizens and income to our public treasury? The creation of the SODO Transportation Fund is an innovative and hopefully an effective tool in addressing this concern. It will allow—and to be most effective will need—other governments to contribute, including state and regional funds, King County, and hopefully the Port of Seattle—although the Port notes it doesn’t have uncommitted transportation funds, given its planned $300 million contribution for the viaduct replacement.
The $40 million Transportation Fund must be used as an effective tool in sustaining SODO as a manufacturing and maritime zone, if Seattle is to remain a profitable and vibrant port for world trade. Currently the Port of Seattle is in negotiations with the Korean shipping company Hanjin, which accounts for 1/3 of the Port’s maritime operations. From my reading of the MOU, even with the Transportation Fund, there is still a need for strong assurances that the new arena will not hinder the Port’s ability to do business, and that our truck routes through SODO will not become more congested. I will be talking to those representing working and operating manufacturing businesses in SODO to seek out what options could be pursued.
And we should note that we must also consider the impact to the Mariners operations. The public has invested over $300 million in their facility; we do not want our investment endangered.
THE THIRD WAY – KEY ARENA BECOMES A BURDEN TO THE CITY
I struggle with how we can justify making public investments in one private facility while appearing to be prepared to abandon another public one. No one has come up with a proposal that will save the Key Arena as a facility for either sports or entertainment. And while including it in the SEPA process is admirable, is there anyone that believes it will be chosen as the best location for a new arena? And if it was, who would renovate or build a new one there? Chris Hansen, who is the only player in town, will not do so. Even the MOU recognizes this when it opens the door for the City and County to pursue Hansen’s project if there are no other bidders for building an arena elsewhere.
This is the city’s most immediate problem. By steering five million of the seven million in the Key Arena fund away from the Key Arena to the new arena, to accommodate the women’s professional basketball team, the Storm, we have essentially sentenced Key Arena to be demolished. The city, using public funding, must decide what will replace it. Something must be in that location that can provide more pedestrian activity in the Seattle Center than what has been provided in the past by the Key Arena, and something that can support itself financially and hopefully contribute to the Seattle Center’s financial bottom line.
Of the three ways that Seattle has a negative financial exposure, this one appears to be the one least addressed in the MOU. It is difficult to see how the Seattle Center will gain from this new basketball arena; it is much easier to see how it will suffer. And, that could negatively impact our general budget. Seattle Center’s welfare must be taken into account in a manner that goes beyond this MOU.
Aside from my concern with how the new arena may negatively impact our general fund, I believe that the public deserved more time to assess its strengths and weaknesses. And I too wished to dig deeper into this document that was only completed 48 hours before the Committee vote. For that reason, I abstained on the vote and had asked our Council President Sally Clark to delay the final council vote until Monday Sept. 24th, which she did with the concurrence of the Committee Chair Tim Burgess.