Group says Sodo arena deal runs afoul of city rules

Arena opponents are raising questions about whether the public-private partnership meets requirements under initiative 91, which places restrictions on city financing for sports facilities.
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Site of the proposed new arena in SoDo. First Avenue South is the western boundary; the Safeco Field garage is to the north.

Arena opponents are raising questions about whether the public-private partnership meets requirements under initiative 91, which places restrictions on city financing for sports facilities.

Sonics Without Subsidies, a newly formed group opposed to the $490 million deal behind the Sodo basketball arena, released a report on Tuesday that said the public-private partnership financing the sports facility violates a city ordinance and should be revised. If it is not, the group said they’ll file a lawsuit against the city and the project’s developers.

City officials generally declined comment, but there were lengthy reviews of the deal before it was approved. The City Council and the mayor's office were aware of a voter-passed law that places restrictions on city financing for arenas and stadiums. And some members of Sonics Without Subsidies have leveled similar legal complaints against the arena in the past. But with a new mayor and a new member on the Council, the group’s arguments could gain fresh political traction, whether or not a lawsuit is filed.

The deal, according to the report, extends more than $731 million in subsidies to the arena’s developers over the next 32 years, in the form of unpaid interest, tax credits and uncollected property taxes. Cleveland Stockmeyer, the group’s attorney, said at a press conference on Tuesday that the financial arrangement violates a city ordinance established in 2006 by ballot Initiative 91. The ordinance states that the city must receive a “fair value” return on tax-dollars invested into professional sports facilities.

“There’s a grab bag of hidden subsidies in this deal,” Stockmeyer said. “Every one of them is a special tax break that the normal person is not allowed to get.”

Hedge fund billionaire Chris Hansen originally proposed the arena in early 2012 as part of an effort to shepherd a professional basketball team to Seattle — the Supersonics decamped from the city to Oklahoma in 2008. The City Council voted in October of 2012 to approve a deal that uses $200 million of publicly issued bonds to help pay for the project. Hansen, meanwhile, said he would invest $290 million of private money.

Councilmembers considered Initiative 91 as they decided whether to involve the city in the arena project. In a July 2012 committee meeting, members heard from the initiative’s authors and from staffers who had analyzed whether the public-private partnership violated the ordinance. Seven councilmembers and Mayor Mike McGinn backed the arena plan.

While McGinn’s office had not seen the Sonics Without Subsidies report on Tuesday, spokesman Aaron Pickus emphasized that the city had extensively vetted the deal financing the arena.

“We went through a thorough public review process to make sure it would be compliant with city rules, I-91 and the mayor’s responsibility to protect the general fund,” Pickus said.

City Councilmember Tim Burgess, who took a lead role in trying to ensure that the deal was advantageous to the city, declined to comment on the report and Council President Sally Clark did not return phone calls. City Attorney Peter Holmes’ office, according to a spokesman, can’t talk publicly about the legal issues surrounding the arena because of its attorney-client relationship with the Council and the mayor.

In the coming months, Sonics Without Subsidies will try to convince the City Council and, once he’s in office, mayor-elect Ed Murray, that the deal runs afoul of Initiative 91.

“If the city does not make this deal conform to law,” Stockmeyer said, “we will sue the city, the county and Chris Hansen.”

Stockmeyer and other Sonics Without Subsidies members have already tried to kibosh the arena. Some of the group’s members, which include union representatives and neighborhood advocates, filed a lawsuit earlier this year in a King County Superior Court. Judge Laura Gene Middaugh threw out the case. In her ruling, Middaugh said the project hadn’t progressed far enough for a suit to be filed. An environmental impact analysis of the arena is underway and will need to be completed before the project can proceed.

The plaintiffs in the lawsuit provided the roughly $15,000 used to pay for the report presented on Tuesday, Stockmeyer said. Adrien Gamache, CEO of the consulting firm Private Valuations, authored the report.

Under the memorandum of understanding forged between Hansen and the city, Arena Co., the company developing the project, is required to make monthly rent payments that cover the principal and interest of the $200 million of publicly issued bonds. The Sonics Without Subsidies report said that the bonds are effectively a loan and that the company should pay the city, as well as the bondholders, interest for the money. “Fair value” interest payments, the report said, would total $149.3 million.

The report also said that the memorandum of understanding provides Arena Co. with tax credits and property tax exemptions worth $674.5 million, and that the city is taking on excess risk with the project. These facets of the agreement, according to the members of Sonics Without Subsidies, also violate Initiative 91.

To arrive at the $731-million-in-subsidies number, the author of the report added up the interest payment and tax revenue figures for a total of roughly $824 million and then subtracted the $92.4 million of land improvements the arena is slated to eventually provide for the city.


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