An Arena? Let the Grandkids Pay

After looking over Sacramento’s plan to go deep into debt to fund a giveaway to National Basketball Association, the editors of the Sacramento Bee proclaim it “doable.” The city, they assure their readers, has “the numbers to back it up.”

This conclusion can only mean those editors didn’t read or understand the numbers, because the numbers themselves shout, “Don’t do this!” The numbers describe a city that, despite imposing the highest and most regressive taxes in its region, still suffers from depleted reserves, large unfunded liabilities, and reduced levels of public services.

So how, in the face of that fiscal mess, does Sacramento buy an arena it can’t afford? The numbers say city leaders and the Bee want to make the grandkids pay.

Because city officials aren’t interested in helping citizens understand what they are up to and what the numbers mean, I’ve turned them into this picture:

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The city wants to sell bonds to fund $212.5 million of its subsidy to a new arena for the Sacramento Kings. That’s the red-shaded arena on the graph. It plans to repay the debt with future revenues from parking in the central city.

But there’s a big problem here. The parking revenues are already spoken for. They are used to pay for parking operations and the mortgages on the city’s garages, with the balance going to the general fund for police and other services. There aren’t enough of those dollars to pay for all those things and the arena debt too.

To solve the problem of having more wants than wallet, the city takes the low road: borrow a lot more and delay the obligation to repay far into the future. It plans to take out an extra $91.5 million in debt (the yellow-shaded area in the picture) and use some of that extra borrowed money to pay the interest on the bonds for the first four years. A $212.5 million subsidy to the arena thus becomes $304 million in debt to be paid off over 36 years.

Is this “doable?” Yes. There’s a whole industry of investment banks, financial advisors, and consultants who, for a price, will show how to put together and sell, at very high prices, “doable” debt for cities that want to live beyond their means. (There’s also an industry of people who, for a price, will tell you how sexy you are.)

But it’s doable in the same way that you could take out a home equity loan to add an extra room on your house, then pay the interest on the equity loan by stopping your contributions to your retirement account and pulling a cash advance out of the Visa card until you’ve paid off the car loan and have a few extra dollars. What’s “doable” is often the way to end up poor and bankrupt.

The black line on the graph shows the remaining debt from the deal over time. The city won’t begin making principal payments on that debt until 2022, and full principal payments won’t begin until 2034. The whole debt won’t be repaid until 2050. And repayment of the $212.5 million portion of the debt taken out to subsidize the Kings (the red-shaded area) won’t start until 2038, 22 years after the arena is supposed to open. The grandkids will pay all of it.

If that debt were buying something likely to make Sacramento a better place for them in 2040 or 2050—flood control, schools, bridges, parks, housing—pushing the repayment obligation deep into the future would be one thing. But arenas are more like cars than houses. They begin losing value the day they open. Team owners drive them for 10 or 15 years, then declare them “obsolete.” They demand taxpayers buy them a new one, or at least a complete and expensive overhaul. And cities rarely have the courage to refuse them.

So let’s be clear about what the numbers mean. The city and the Bee want the largest burden of paying for an arena in the present to fall on people in the future who will likely never buy a ticket there because it’s already gone or “obsolete.” (And if you doubt that, go count the number of today’s arenas that were around 30 years ago and never substantially overhauled. It’s zero.)

Instead of being able to use their own resources to pay for the public services and projects they need in their own time, our grandchildren will be paying for a subsidy a previous generation cheered but then put on the credit card—to go along with the unfunded liabilities for pensions and retiree health benefits of city workers.

Isn't that the kind of government irresponsibility we pay newspapers to warn us against? Apparently Bee bigwigs Cheryl Dell, Joyce Terhaar, and Dan Morain are so busy waving pompoms for the owners of the Kings they don't have time to watch out for the future of their community.

Remembering the SF Ballpark Five

Most sports memorabilia recall a favorite game or player. The autographed baseball sitting on my desk is different.

The autographs belong to the group that dubbed itself the SF Ballpark Five — Gregg Lukenbill, then owner and managing partner of the Kings; Maurice Read, his spokesman; and political consultants David Townsend, Jack Davis, and Richard Schlackman. Amid all the huffing and puffing in Sacramento about who or who's not giving money in the fight over the proposed subsidy to the Kings and their wealthy owners, their signatures recall a day when the Kings ownership itself was the shadowy "outside" force siding with taxpayers against sports extortion.

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It was 1989 and the extortionist in question was Bob Lurie, owner of the San Francisco Giants. He was threatening to move the team to Tampa or some other eager town if the taxpayers of San Francisco would not build him a new stadium to replace the wind tunnel known as Candlestick Park. Mayor Art Agnos led the charge with a measure to do just that for the November ballot.

Unfortunately for the extortionists, the San Andreas Fault choose the wrong moment to slip. On October 17 the Loma Prieta earthquake knocked down a portion of the Bay Bridge, damaged San Francisco's Embarcadero Freeway, and destroyed blocks of houses in the Marina District.

Agnos briefly put the ballpark subsidy push on hold but then resumed campaigning. Opponents of the deal replied on the final weekend with a mass mailing suggesting that, what with the earthquake and all, the city might just have more pressing uses of tax dollars than lining Lurie's pockets.

And here's where Agnos dropped the bomb he had been holding in reserve: The opponents' mailer, he charged, was financed by Gregg Lukenbill of Sacramento, who was trying to steal the Giants. "We haven't had any looting after the earthquake until now," Agnos proclaimed. In a front-page editorial the San Francisco Chronicle piled on: "A contemptible, inflammatory and highly inaccurate hit piece... stands exposed as a scheme by Sacramento promoters." (How much importance do newspapers attach to subsidizing the home team? In all my years of reading the Chronicle — through the threat of Cold War nuclear holocaust, the turmoil over the Vietnam War and civil rights, the crimes and impeachment of Richard Nixon, the assassinations of Mayor George Moscone and Supervisor Harvey Milk — that is the only front-page editorial I can recall.)

Lukenbill denied any involvement. And despite Agnos's charges and the Chronicle's ranting, San Francisco voters turned down the subsidy plan.

But Lukenbill was lying.

Maurice Read, his spokesman, and David Townsend, the Sacramento political consultant, had met Davis and Schlackman, managers of the campaign against the subsidy, for lunch in San Francisco on September 29. They learned that the campaign was winnable but needed money for opposition mailers. They relayed the news to Lukenbill, who was deeply committed to building a privately financed stadium to bring the then-LA Raiders and baseball to Sacramento. Lukenbill knew that if the Giants stayed in San Francisco the team could block any competitor from locating in Sacramento, within its monopoly 100-mile territory. To improve Sacramento's chances, he called business associates and asked them to donate to opponents' campaign. One of them, a Woodland steel manufacturer, made a $12,500 contribution reported the day before the election.

"I made a few phone calls to protect Sacramento's interest in potentially getting a baseball team here," Lukenbill admitted months later. "I'm not ashamed of that. I'm proud of it. I want baseball in Sacramento and I'm proud of it and I'm not going to back off of it."

What Lukenbill didn't know was that Agnos and the Giants, their campaign failing in the wake of the earthquake, had been tipped off to his possible involvement within days of the first contact with the opponents, and had been itching to use the "outsider" threat in a last-minute push. Nor did he know that Agnos was a bad loser. The mayor urged San Francisco District Attorney Arlo Smith to prosecute his opponents; Smith, hoping to goose his campaign for state attorney general, complied. He got the grand jury to indict Lukenbill and the rest of the Ballpark Five on the incredible theory that their efforts to help the anti-subsidy campaign constituted a conspiracy to create a campaign committee that had failed to report its existence.

But this is the rare story with many happy endings:

• Having failed four times in five years, first in San Francisco and later in San Jose, to get voters to buy them a new stadium, the Giants, under new ownership, gave up their extortion bid and built their own privately financed ballpark. The team has gone on to win two World Series.
• Having protected their public resources for investments more potent than subsidizing sports owners, San Francisco and San Jose are now among the most economically buoyant big cities in the world.
• When the Ballpark Five reached court, the judge dismissed the case, saying there was no evidence any laws were broken and no grounds for the grand jury's indictment or the district attorney's pursuit of the case.
• Dogged by the judge's conclusion that he had been engaged in a political prosecution and hurt by revelations that he had sought to speed up the case to help his campaign, Arlo Smith was defeated in his campaign for attorney general.

The baseball on my desk freshly reminds that, in politics as in sport, the game is hardball, and though everybody mouths the bromide about "it's how you play the game," the spitball your side throws never seems as wet as the one loaded up by guy in the other dugout.

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Will the NBA love Sacramento if it doesn’t put out?

I’m reminded, as I watch the saga of the Sacramento Kings, of one of those movies about the plain girl in high school—the girl who’s smart and sensitive but aches to have the cool kids like her and a boy tell her she’s pretty.

Right now, with the National Basketball Association’s relocation committee having recommended against moving the Kings to Seattle, we’ve reached the scene when the heroine, her inferiority complex in full bloom, sees her wildest dream come true. She’s been invited to the prom! And not just by another nerd. No, she’s been asked to share the big night with the star of the basketball team, the most handsome and suave of the in-crowd!

Doubt—does he really like me?—gives way to giddy excitement. She trades her normal drab uniform (baggy brown sweater over black tights) for a shimmering sheath, sweeps up her hair in a stylish do, and performs magic with the makeup tray. Bliss is just a limo ride away.

Of course, the audience knows what she doesn’t, something she may suspect but won’t let herself believe. The basketball hero, a bully and predator, has asked her to the prom only because he’s bet his crew he can have his way with her before the night is out. The homely ones are the easiest to nail, he brags. They’re so desperate they always put out.

Sacramento has so far played the heroine to perfection. If they awarded Oscars for desperation, it would sweep the field. Driven to madness at the prospect of losing the Kings, the city’s elected officials broached the idea of offering more than $300 million, roughly $600 per city resident, in subsidy to the NBA.

But now the plot turns. With the move to Seattle vetoed, the argument that Sacramento taxpayers must throw a wad of cash at the NBA because keeping the Kings was somehow economically vital—a weightless argument always—is moot. Here they stay.

Moreover, the city’s latest budget, released the same day the NBA decision was revealed, makes clear that an arena subsidy is money the city doesn’t have and, even if it did have it, needs more vitally elsewhere. The budget shows deficits and more cuts in already savaged city services as far as the eye can see—and then comes the “cliff”: the expiration of the temporary city sales tax that went into effect April 1.

So this is where the plain girl thanks her date for a lovely evening, expresses her hope that they will stay friends, and closes the door. There is no reasonable case for putting out.

The End.

Roll the credits.

Wait, wait, wait, I hear cheerleaders for an arena subsidy shout, that’s not how the movies go. The basketball dude doesn’t take “no” for an answer. If Sacramento doesn’t put out, the NBA will change its mind and move the team.

Really? Do those cheerleaders understand what they are telling us?

That all the nice words the NBA has spoken about Sacramento’s long and loyal customer support of the Kings are just sweet nothings, lies whispered in our ears to distract us from its true agenda.

That the crew of superrich would-be owners of the Kings and self-proclaimed believers in Sacramento and its future, men whose wealth surpasses all understanding by mere mortals, men like Vivek Ranadivé, who modestly bills himself on his blog as “entrepreneur, technology visionary, author, philanthropist, angel investor,“ are so bereft of capital and imagination they to cannot do what Gregg Lukenbill—the local developer, a guy in flannel shirts, jeans, and steel-toed boots, who brought the Kings to Sacramento in 1985—managed to do: build an arena without having to apply for AFGB (Aid to Families of Grasping Billionaires).

That should Sacramento balk at his advances, Ranadivé will lean into the face of the heroine and say, "Don’t you get it, you ugly bitch? I’m only here because I bet I could get into your pants."

Now that’s a movie I’d pay to see.

Eye on Sacramento Eyes the Deal

Eye on Sacramento, a local citizen watchdog group, has done what the Sacramento city staff and the Sacramento Bee have failed to do: write a comprehensive analysis of the terms and risks of the proposed city giveaway to the NBA Kings.

Read it and be sure not to miss my favorite part: where Stanford economist Roger Noll, a leading expert on sports economics, notes that the free luxury suite that the City Council and Mayor have negotiated for themselves will cost Sacramento taxpayers $8 million.

Now we know who are the real Kings in Sacramento.

Will Sacramento Be a Sucker For the Kings?→

Your city is plagued with high unemployment, rising crime, declining public services, and unfunded liabilities that now amount to $2 billion, or about $5,000 per resident. What do you do?

Well, if you are the Sacramento City Council, you vote, 7-2, to signal your willingness to spend hundreds of millions of dollars you don’t have to subsidize a billionaire by building a basketball arena. “Every great city has a coliseum,” said Steve Hansen, a council member.

But the question for Sacramento is not what great cities have but what measures a failing city should take to make itself great. Paying corporate welfare to the rich doesn’t even make the list (something that Hansen, a corporate lobbyist himself, may be professionally forbidden to recognize.) At Zócalo Public Square today I explain how the dark side of sports loyalty blinds those whom the gods wish to destroy.

Talking Head

I’ll be joining David Watts Barton on Capital Public Radio’s Insight, Wednesday, February 29 at 10:00 a.m. and 8:00 p.m, 90.9 FM on the Sacramento area radio dial, to talk about the arena deal and Sacramento’s fiscal crisis.

UPDATE: They switched hosts on the show; Beth Ruyak took the microphone (you can hear the podcast here). And if we needed any evidence of the stakes as I explained them, take a look at what I ran across in the neighborhood on the way home.

The police wouldn’t come

The owner lost a couple of thousand worth of tools and some new, uninstalled appliances. When he reported the crime, the police told him it’s policy not to investigate unless guns or explosives were stolen. And remember, this is before a financially strapped city spends $250 million to subsidize the NBA.

Sports Extortion (Cont'd)

The Sacramento Bee asked me for my take on the question of whether Sacramento ought to spend $200 million to subsidize a new arena for the Sacramento Kings and the National Basketball Association. You can read my answer on the Bee’s site.

The Bee gave me only 800 words, so I wasn’t able to flesh out the argument as well as I would have liked. Fortunately, we have the web for that.

If you want to understand the economics better, you can check out the longer reporting piece I wrote for the Bee when I worked there. The most accessible book on the subject is Neil deMause and Joanna Cagan’s splendid Field of Schemes: How the Great Stadium Swindle Turns Public Money into Private Profit. Neil deMause also runs a companion web site, Field of Schemes, where he tracks and analyzes the money grabs of welfare-seeking sports owners around the country.

Given more space, I would have also repeated what I wrote here last spring: The best way to limit the extortion game is for the California Legislature to prevent the billionaire sports owners and their leagues from playing city against city. It should ban any local jurisdictions from using public funds to subsidize professional sports teams.

California is at a critical moment on this issue.

The extortionists are on the attack right now all over the state: Sacramento, San Diego, Santa Clara, Anaheim, Los Angeles. But as we all know, from the news and daily life, core California public services reducing the state’s quality of life. Every public dollar extorted today steals from California’s future.

Ideally, local politicians would do the right thing. But there’s something about sports that makes them go weak in the knees and soft in the head. (My wife blames it on testosterone poisoning.) They need to be saved from themselves with a law that protects them against their worst instincts.

That law would set budget priorities right at a time when we need to be putting first things first. But it would also send a bracing message to the rest of the country. If California cities, home to one in eight Americans, can no longer be used as leverage in the extortion game, other states will gain some protection, and perhaps even be encouraged to protect their taxpayers as well as California does.

Contrary to the moans of the extortionists, that wouldn’t mean the end of pro sports. As Scott Lewis points out, at Voice of San Diego, we would then be on track to replace sports socialism with true sports capitalism. And who can disagree with that?

How California Can End Sports Extortion

The game is officially on. After weeks of playing playing footsie with Anaheim, the Maloof family, the owners of the Sacramento Kings, announced Monday that they’ll keep their woebegone basketball team in the capital city another year in hopes taxpayers will buy them an arena. The announcement is the opening whistle for the game of extortion that is at the heart of the National Basketball Association’s business model and that of other professional sports leagues.

The game works this way: The NBA creates an artificial scarcity by keeping the number of franchises low. That scarcity means there are always cities itching to have a team and foolish enough to be willing to lay out taxpayer money to subsidize an arena to attract one. Municipal foolishness sets up the opportunity for extortion. The NBA tells the city whose team has the least heavily subsidized or attractive arena that they must use tax dollars to build the team a new one, or risk losing the franchise to one of the eager wannabe towns. Build it, or we will go.

This extortion game is one driver of growing income inequality in America. It is a settled fact of economics that building a publicly financed sports facility creates no economic benefit to the community that pays for it. All of the tax dollars end up finally in the pockets of millionaire players and billionaire owners.

Unfortunately, sports subsidies are catnip to local politicians, who are boosters are heart and who love to live in the reflected glow of sports celebrity and enthusiasm. Local media rarely look critically at the flawed arguments offered for subsidizing sports franchises. From the sports page to the advertising and marketing departments, media have a big interest in keeping a sports team from moving. It provides prestige to those who report about it, what’s now called “content” to bring in readers and viewers, and more advertising dollars. When the extortion game begins, politicians and journalists alike find themselves powerless to resist playing.

What makes the game different this year is that it is being played mostly in California. Look around pro sports and you’ll notice that many of the big extortion plays are aimed at California taxpayers. There’s Anaheim vs Sacramento in basketball. Santa Clara is trying to move the football 49ers from San Francisco. The baseball A’s are looking to move out of Oakland toward Silicon Valley. Los Angeles is fighting over building an NFL football stadium, perhaps to lure the Chargers out of San Diego. And that concentration creates an opportunity to suspend the extortion game. If the Legislature were to step on the hose of dollars, the extortionists would be out of luck.

At a time when local governments are slashing budgets for police, fire protection, libraries, parks, recreation, and schools, it is insane for them to give tax dollars as subsidies to billionaire sports owners. As we point out in California Crackup, one of the defects of California’s current system of governance is the post-Prop 13 operating system that has centralized power in Sacramento. But here is a moment when the Great Centralization can be a benefit in providing one-stop stopping of the sports extortion game.

All that is required is for a majority of lawmakers to add control language to the budget denying any of the appropriated funds to communities that provide any taxpayer funds to subsidize stadiums or arenas. And how hard can it be to collect that majority? Republicans oppose tax increases. Democrats oppose cuts to public services. The goal of the extortion game is to benefit billionaires and millionaires by forcing what both Republicans and Democrats oppose. Surely both parties can agree that now is the moment to shut the game down.