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Originally published Monday, June 18, 2012 at 11:42 AM

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Chris Hansen's innovative Sodo arena proposal protects public's interests

The innovative financial model used for Chris Hansen's Sodo arena proposal provides strong protections for the public and minimizes financial risk, writes Dwight Dively, director of the King County Office of Performance, Strategy and Budget.

Special to The Times

Arena proposal hearing

INVESTOR CHRIS HANSEN will meet with the Metropolitan King County Council's budget committee to discuss his Sodo arena proposal at 1:30 p.m. Tuesday at the King County Courthouse in County Council Chambers, 10th floor, 516 Third Avenue in Seattle.
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AS lawmakers at King County and Seattle begin their review of the arena proposal advanced by County Executive Dow Constantine and Mayor Mike McGinn, it is critical that we understand how the innovative financial model used for this proposal provides strong protections for the public, minimizes financial risk and how different it is from those used for the region's past stadiums.

We've learned from history.

Much work and careful thought has gone into adding multiple layers of security for the public based upon our past experience with the four sports facilities built or remodeled in King County in the past 40 years: the Kingdome, KeyArena, Safeco Field and CenturyLink Field. We are shifting most of the risk to private participants.

• No new taxes are needed to support the basketball and hockey arena, unlike three of the previous projects.

• A private operator will be responsible for operation and maintenance. This will avoid issues the Kingdome and KeyArena had where maintenance costs had to compete with other government services.

• The public investment is capped at $200 million. The investment will be guaranteed by the operator and the ownership group, and payments on that debt will come from the new revenues generated because of the arena and from rent paid by users. This is unlike any of the previous facilities.

• Unlike previous projects, a private entity will be responsible for construction and any cost overruns.

• The NBA and NHL teams will be required to sign leases at least as long as the term of the public debt, along with binding non-relocation agreements. This will help avoid what happened at KeyArena, where the Sonics' lease ran out five years before the debt was repaid.

The public will end up owning the underlying land and arena facility. Significant financial reserves will be required by the private operator, and confirmed every year.

It is also important to understand what the proposal does not do.

This proposal does not rely on indirect tax revenues, such as those generated by hotel stays and restaurant meals purchased by visiting fans. That was the case for previous stadium projects.

With very minor exceptions, this proposal does not rely on tax revenues diverted from other entertainment expenses. The two largest arena-related tax revenues — the city's admissions tax at the arena and the business-and-occupation tax on the new teams — are not revenues the city gets from other professional sporting events.

This proposal does not divert tax revenues dedicated for public services, such as the county's sales tax for transit or the region's property tax for emergency medical services. Instead, it adds revenues for these services.

Each partner in this three-way agreement brings particular strengths. The investors bring the land, the cash, most of the financing, the teams and expertise in development and operations. Seattle brings the bulk of the tax revenue generated by the arena, to repay the bonds. King County brings much of the debt capacity, and a small amount of tax revenue.

The arena proposal offers a wide range of public benefits. The obvious one is access to professional basketball and hockey teams. The arena will also attract other events, some of which would not otherwise have come to our area.

Construction will generate jobs and tax revenues. For example, the state will get at least $15 million in sales taxes from arena construction. This is money that would not otherwise exist.

While many complex issues, such as transportation, remain to be considered, we should recognize how the financing for this proposal is different from past projects, and how we've learned from the lessons of that past to benefit the public.

Dwight Dively is director of the King County Office of Performance, Strategy and Budget. He is the former director of the Seattle Department of Finance.

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