The Seattle Arena project in SoDo would contribute an estimated three times more to the city of Seattle's general fund than a competing proposal to redevelop KeyArena at the Seattle Center, a new study finds.
Early last week, the Evans School of Public Policy & Governance at the University of Washington released findings of an analysis of potential public finance elements of the two proposals. The study was conducted by Justin Marlowe, an endowed professor of public finance and civic engagement at UW, along with three students in the Masters of Public Administration program, two of whom are certified public accountants.
Dr. Marlowe was part of an independent team that analyzed the original 2012 SoDo arena Memorandum of Understanding and proposed public-private financial framework for the King County Council.
The analysis was commissioned on May 19, 2017, by the private investment group behind the SoDo arena project as an "independent, fair, and transparent" analysis. It has two identified objectives: to highlight the public finance implications of the proposals, and to provide city leaders and the public with a tool to explore these implications more deeply.
Seattle mayor Ed Murray announced the selection of the Oak View Group's proposal as the winning bid for the potential KeyArena project on June 7th. Since then, city executive staff has been engaged in negotiations with OVG on an MOU to define the relationship and responsibilities of an agreement between the private group and the city for the project. Dr. Marlowe's team reached out to the city for input and response to the study but did not hear back from them.
Findings
The study defined a "base case" of assumptions to analyze, including ticket prices, concessions, tax rates, parking, and other factors. With the base case, the analysis found that the SoDo arena would contribute an estimate $103 million to the city's general fund over a 35-year lease. OVG's proposal would generate $34 million over the same timeframe.
To provide a range, the study looked at conservative assumptions that would contribute $67 million from SoDo to just below $25 million from KeyArena. Aggressive assumptions peg the SoDo versus OVG contribution at $111 million to about $47 million.
Both proposals come up about even in tax revenues requested to be redirected into the project. The SoDo group has asked for exemption from the city's admissions tax, which would be approximately $205 million over 35 years. OVG's plan is to redirect a mix of taxes, including retail sales, construction sales, admissions, parking, and leasehold excise tax, back into a "City Arena Fund" to backstop capital improvements and maintenance for the arena. This would be roughly $167 million over 35 years.
The study notes that OVG could ask for similar redirection from King County and the state, pushing their total to above $200 million.
OVG's plan also has the potential to send more money to the general fund if they can fill the City Arena Fund to $40 million. The study's model found that it would be around year 9 for that threshold to be hit. It also assumes that an expected major renovation of the arena at around the 12 to 15-year mark would not rely on revenues in the City Arena Fund. Similar renovations around the country well exceeded $40 million, would’ve used all of the fund, and would’ve prevented any additional payments to the general fund.
The analysis also found that SoDo's insistence on paying all applicable property taxes as a fully privately funded project would contribute approximately $98 million to other local government entities, particularly Seattle Public Schools and, ironically, the Port of Seattle.
The Port of Seattle has long been an opponent of the SoDo arena project.
Team assumptions
Of interest to sports fans, the study makes the assumption in the base case that an NHL team would be available to open the SoDo arena in its first year, supporting the concept that they won’t build until a team is secured. An NBA team is anticipated to arrive in year 4 for SoDo.
By contrast, an NHL team is assumed to start play at the redeveloped KeyArena in its second year of operation. NBA is assumed to arrive in year 8.
In the aggressive assumptions, SoDo would have NHL to start and see NBA by year 2. OVG would open their arena with an NHL team, as well, and bring on the new Sonics in year 4.
The conservative assumptions have NHL and NBA at SoDo in years 1 and 7, respectively. OVG is assumed to bring the NHL in year 4 and debut the NBA in the arena’s tenth season.
Conclusions
It should be noted that the analysis was done using the initial proposal presented by OVG in its response to the city's request for proposals for a KeyArena redevelopment. A negotiated final agreement between the two parties could feature a very different financial framework. Further analysis will likely be done once a negotiated proposal is made available.
For now, the study makes a compelling case for the SoDo arena project. You can read the release from the Evans School, as well as the full report here.
Comments
Hi. .. I'm a Sonics fan.
Please bring them home. ASAP.
By kinsesu on 07.17.17 12:10am
property tax
What I find so disingenuous of the study is the fact that the property taxes are included as if they are adding more to the general fund. The SoDo site will pay taxes with or without an arena so it isn’t adding anything new to the general fund. It’s a play right out of field of schemes.
By John Barr on 07.17.17 7:10am
Property taxes are based on value
And a Sodo Arena would be 50 times more valuable than existing warehouses etc, so the 100 million reflects the difference
By bmac64 on 07.17.17 7:36am
not according to the model
The model just takes 100% of the value of the new construction, not the difference of the land before and after. It is also interesting to note that they assume the value of the building stays the same where accounting for most arenas have a depreciation over time. So in essence, for the model they are keeping the value artificially high to show higher property tax. The SoDo group has also threatened to turn the land into condos or office buildings which would probably carry a higher tax revenue to the city.
By John Barr on 07.17.17 8:04am
Would be interesting to see if
new arenas assume the property value of the new construction cost upon completion.
The model does factor in the tax rate assessed on $1000 of assessed value regardless of overall value. It also adjusts for inflation. Would that correspond to a model-able value of depreciation on the property?
By Matt Tucker on 07.17.17 10:36am
While an Arena depreciates over time...
Would that really not be offset by the increase in the value of the land as the area around the Arena is redeveloped? I find it extremely unlikely that the land at Safeco Field is less valuable than it was 15 years ago. On top of that, the development around the area would only increase which should actually raise the property values for ALL the areas around the stadium
By blykmyk44 on 07.17.17 11:31am
Was just about to say the same thing.
Well said.
By itsanospreybich on 07.17.17 11:53am
I am a property appraiser...
And was going to point that out. While improvements have a depreciation table, the land in most cases typically trends in the opposite direction (upwards). The land trend upwards in most cases more than offsets the improvement depreciation, giving you an overall increase over time.
By bosshogg18 on 07.17.17 12:27pm
That land /
Taxable cost value usually appreciates faster than physical building depreciation in highly sought urban areas.
(Oh Hi Boss Hogg)
By Payton's Rules on 07.18.17 10:50pm
It is comparing one arena to the other
Not comparing SODO taxes to what the city makes with those buildings already. The report itself says property value is based on 1% annual growth per state law.
Not that it really matters. SODO has had plenty of analysis showing that it is a good idea and the city council doesn’t care. At this point I think the only thing that would move the needle is if the SODO group offered to build a bunch of affordable housing to dare the council to say no.
By Azchristopher on 07.17.17 9:45am
Gonzales is asking Mayor to step down...
Amongst other public figures pressuring Murray. What happens here if Murray cedes to public pressure to resign? Does that help SODO?
https://twitter.com/chrisdaniels5/status/886985953427955713
By bgramer on 07.17.17 9:31am
Well he hasn't exactly been a champion of SODO
Maybe gets the alley vacation vote delayed to a mayor more supportive of having two arenas?
By Azchristopher on 07.17.17 9:36am
Good...
I’m glad that she has taken that position to get him to step down. I also hope this delays the OVG MOU to give Sodo the chance to pass the street vacation.
By WoodLandSonic40316 on 07.17.17 9:40am
LOL - - notice she asks him to "consider" stepping down. She's not "asking" him to step down. Weak.
By kinsesu on 07.17.17 10:14am
Well sure, she doesn't want to hurt his feelings
Yes….he is being accused of horrific crimes against children, but we don’t want to upset him.
By rtallmadge on 07.17.17 10:21am
It is a little stronger than that.
She basically says he can agree to step down and be part of a transition team. Or he can not agree in which case she wants the council to meet and determine if a transition is warranted.
Either with them or without them. Honestly, seems pretty bold to me to be the first on the council to come out and say it.
By Azchristopher on 07.17.17 10:26am
Thanks .. . I was just going off of Daniels tweet.
From my pov – - he needs to pack up his office today & just go away.
By kinsesu on 07.17.17 11:14am
Seems the rest of the council is reluctant to support her
Daniels posted videos of their statements on his Twitter feed.
By Mark.S40 on 07.17.17 1:44pm
You have to make a narcissist
think it’s their decision or they will only get more defiant.
By itsanospreybich on 07.17.17 10:41am
No
The council is the bigger factor in the arenas now.
If the mayor should happen to resign, the executive staff will likely stay in place. They are the ones working on negotiating a deal with OVG to present to the council. SoDo is still on its process track.
All roads lead to the council.
By Matt Tucker on 07.17.17 10:42am
If she is serious then Article V. Executive Department Sec. 10 should be invoked
By Trolltossin on 07.17.17 12:41pm
The rest of the council doesn't seem to agree.
Chris Daniels posted video from several of them.
By Azchristopher on 07.17.17 1:37pm
I'm not sure if this study can counteract the mayor's study
And by the " mayor’s study", I mean the baseless claims of Sodo costing Seattle 150 million dollars that Ed likes to spout off every chance he gets. He bothers me.
By rtallmadge on 07.17.17 10:10am
It's not entirely baseless
It assumes that the city would have to fund some kind of renovation of KeyArena to be able to use the facility and garner any revenue from it. It doesn’t necessarily account for potential offset by taxes generated by SoDo nor the possibility of applying for and receiving the historic preservation tax credits that OVG wants to leverage. The city would still be on the hook for the renovation.
By Matt Tucker on 07.17.17 10:40am
It is baseless...
If you realize that spending $150 million to update the Key Arena as the only alternative is a false choice. There are plenty of things that could be done in that area…in fact the City did a whole study to prove that to be the case
By blykmyk44 on 07.17.17 11:33am