Sacramento's Pig in a Poke
/Here's a little quiz. Below are extracts from two separate documents assessing the proposal that Sacramento taxpayers hand over a quarter of a billion dollars to subsidize a new arena for the Kings pro basketball team. Read them and then answer a question.
The development of the Entertainment and Sports Center [ESC] will not only transform Downtown Plaza into a thriving center of entertainment and activity, it will also provide Sacramento with a first-class venue for sports, entertainment and cultural events.... The project will serve as a catalyst for economic development in downtown and throughout the region.
The proposed new arena... poses a variety of challenges for the City of Sacramento’s fiscal health. The city’s fiscal position is already tenuous—the Great Recession hit Sacramento particularly hard.... Spending money on an ESC will affect the local quality of life to the extent that these resources could be used to backfill some underfunded local assistance programs, education, or infrastructure projects. In addition to the already tenuous fiscal situation, the projections of the increase to local economic activity underlying the projected economic impact of the ESC are likely overstated.... The city is gambling with this investment. If it fails, it will put enormous stress on the city’s finances in the near and distant future.
One of these passages was written by an advisor employed by a team owner seeking the subsidy from the taxpayers. The other was written by a city employee charged with providing sound advice to elected officials and protecting the public interest. Which is which?
It will surprise no one that the first passage comes from the city staff report laying out the terms of the newest version of the arena giveaway. Such puffery has been the norm from the city in the arena discussion.
No, the surprise is that passage that tries to make realistic judgments about Sacramento’s economic strength and fiscal capacity to do an arena deal comes not from those paid to protect the public but from the analysis of the 2012 arena proposal (the current plan Is largely the same) that was written for the Maloof family, owners of the Kings, by Christopher Thornberg of Beacon Economics.
You won’t find anything in the city staff report that approaches Thornberg’s informed concern for the public interest and the future of the Sacramento. I won’t repeat what Neil deMause has written at Field of Schemes in his dissection of the arena term sheet and what he calls the “perpetual parking revenue machine.” The report is full of double-counting and lacks the detail needed for the public or council to make an informed judgment on its workability. I’ll only note that it’s an insult to the intelligence of elected officials and voters to offer up a half-baked analysis on a decision of such magnitude.
But even more troubling than the parking mystery black box is the city staff’s continued use of arena revenue projections that Thornberg has shown, through careful analysis of the Kings own books and Sacramento’s economy, “to be based on, charitably, best-case scenarios or, not so charitably, a wing and a prayer. Rather than hoping for the best but planning for the worst, this arena proposal plans on the best while ignoring the worst.”
Relying on wishful thinking would put both the city and team at risk, Thornberg pointed out. “When the expected revenues fail to materialize, both will end up severely financially distressed. Given the current budget difficulties faced by the city, such potential outcomes cannot be ignored—as the lessons of Stockton, California, and Harrisburg, Pennsylvania, demonstrate.”
Thornberg’s analysis and message, which I highly recommend you read, became even more relevant with the vote last week at the California Public Employees Retirement System to raise pension contribution rates by 50 percent over five years, which will deliver a hit to city finances roughly double the size of the proposed arena subsidy. It’s not often a consultant of Thornberg’s caliber—and he is widely seen as one of the most sane and reliable economists in the state—writes so bluntly. But it’s the kind of bluntness that good staff provide when big decisions with big stakes are at hand.
And, sadly, it is exactly what Sacramento’s own lavishly paid city manager and treasurer have failed to deliver. They totally ignore Thornberg’s work and fall back on the wing and the prayer. Why? Is it arrogance? Incompetence? A careerist desire to tell the elected bosses what they want to hear, the public good be damned? I can't say.
All I know is this: In my years covering Sacramento city finances as a journalist and serving as deputy state treasurer, I have seldom seen such shoddy analysis and so little concern for the public good from public servants. If this is all Mayor Kevin Johnson and the City Council expect, Sacramento is in deeper trouble than any of us ever imagined.
