June 1, 2013 / 11:08 AM / 6 years ago

Now that basketball team staying, Sacramento sets sights on new arena

SACRAMENTO (Reuters) - Officials in California’s capital are pinning their hopes on a sports arena complex to revitalize a downtown area now occupied by a failing shopping mall so neglected that portions of the second floor slope down.

The $450 million project, set to be completed by October 2016, is key to a deal approved by the NBA this week to keep the Sacramento Kings basketball team in the capital - thwarting a bid by Seattle investors to move the Kings to the Pacific Northwest.

Mayor Kevin Johnson, himself a former league star, says the arena is critical to revitalizing the city’s core.

Sacramento has agreed to kick in nearly $260 million for the project, in exchange for a hoped-for boon of up to 6,500 jobs. Private developers have promised to pony up the rest.

The arena was crucial in ending a months-long tug of war between Johnson and hedge fund manager Chris Hansen, who had sought to bring the team to Seattle. The sale of the team to an investment group pulled together by the mayor was finalized on Friday.

But economists warn that arena deals are risky investments for cities. In Stockton, for example, the construction of a sports and entertainment complex is considered a small but significant factor in the financial woes that led the California city to file for bankruptcy.

“Sports arenas generally are not a sound job creation strategy,” said economist Jeff Michael, who teaches at the Stockton-based University of the Pacific and has reviewed the arena plan.

The complex would “be an ongoing burden for the general fund,” costing the city about $8 million to $12 million annually over the next 30 years, he wrote in a report released this week.

Compared to Stockton, Sacramento’s arena subsidy appears to be slightly higher “both in absolute size and as a share of the general fund budget,” the report said.

Opponents of the deal say Sacramento is risking too much and are suing to stop it. They are also pushing the city to hold a special election.

“A subsidy this large should be allowed a vote by the people,” said community activist Julian Camacho, who is among the plaintiffs.


The proposed complex, approved by the city council this year, would include 1.5 million square feet of new development, including offices, shops, restaurants, a hotel and about 600 residential units. Officials say the project would create 2,300 to 6,500 jobs.

In return, Sacramento has promised to foot a considerable portion of the cost to build it - $220 million in cash and $38 million in property. The Kings’ new owners, an investment group led by software executive Vivek Ranadive, would put up the rest.

The arena will add sizzle to the downtown area, drawing thousands of people to games, concerts and other events, said assistant city manager John Dangberg.

“Basketball, concerts, Disney on Ice, bull riding - it all can happen in a facility like this,” he said.

Officials plan to sell bonds to pay for the project. The interest, estimated at $17 million annually at first and then going up to $24 million per year, would be paid for with revenue from city parking lots and meters, Dangberg said.

Among protections for the city built into the deal, Dangberg said, is a provision making the private developers responsible for all cost overruns, and a promise by the Kings to play there for 35 years.

But attorney Patrick Soluri, who filed the lawsuit, said he believes the city isn’t disclosing all of its costs. For example, the property promised by the city may be worth more than $38 million.

Dangberg said the city was overseeing the project in a transparent way. “There are no secrets,” he said.

The debate over a new arena for the Kings has been going on for at least a decade, as the team’s previous owners wrestled with the city over locations and subsidies.

The NBA has said it kept the team in Sacramento in part because of the city’s promise to help fund a new arena.

Michael, the economist, said the complex may well revitalize a shabby part of downtown. But such a project should be thought of like a museum or a zoo - a service that would benefit residents but might also carry some cost.

“From a planning standpoint I think this arena works pretty well,” Michael said. “But it’s still a big subsidy to swallow.”

Editing by Cynthia Johnston and Xavier Briand

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