SB 4 amended – Big Changes

SB 4 was referred to the Senate’s Appropriations Committee yesterday, but not before it was amended. There isn’t much strikethrough or italics in the amended version, but what was changed was very important. The Appropriations Committee has four Bay Area members: Senators Johan Klehs (Pleasanton), Leland Yee (San Francisco), Mark Leno (San Francisco), and Joe Nation (Marin/Sonoma). All are Democrats.

A hearing has not yet been scheduled in the Appropriations Committee, but it should happen soon.

Major changes:

  • Eminent domain powers have been eliminated from the bill.
  • The Authority will only deal with another public agency to raise funds if a plan has been approved by the appropriate local powers such a City Council, County Board of Supervisors, City or County Planning Commissions, Redevelopment Agencies, etc.
  • The Senate President pro Tem (currently Don Perata, D-Oakland) no longer has the task of appointing two members. The task now falls to the Senate Rules Committee. The only Bay Area member of the Rules Committee is Joe Coto (D – San Jose).
  • The Authority will not have the power to issue bonds. It will have the power to enter agreements with the California Infrastructure and Economic Development Bank (I-Bank), which would then issue the bonds.
  • In keeping with the last change, only the I-Bank’s Board of Directors will have the final approval to issue bonds. This means the I-Bank will also have final determination over the bond repayment plan’s fiscal soundness.

These are all important changes that sap much of the power from the original Authority design. It shouldn’t stop projects from moving forward as long as they are responsibly drawn up, but it will provide a built-in check-and-balance system for everything that goes through the Authority.

The removal of eminent domain, in light of the Supreme Court decision handed down last Thursday, is significant. It means that residents and business in potential project areas wouldn’t have to worry as much about being evicted just for the development of a stadium project. Local powers would still have the ability to use eminent domain, but the Authority itself would have nothing to do with the eminent domain effort.

Lastly, taking Don Perata out of the equation has future ramifications. The Rules Committee is made up of mostly Southern and Central California Senators, The Assembly Speaker is from Los Angeles, and the Governor’s real home is in Orange County. That makes the possibility of having a nine member Authority Board with a heavy SoCal bent quite high. Time, and the eventual makeup of the first Authority Board, will tell whether that translates into priority for SoCal projects.

The Tax-Free Zone: Where the REAL war begins

Consider, if you will, a baseball team in 2005. While its prospects on the field are bright, its economic future – its home, in particular – is uncertain. However, in less than a year, the landscape will change dramatically, and the team will be able to pick from numerous new homes and locales, with suitors falling all over themselves to attract the team.

Poor attempt to channel the spirit of Rod Serling aside, this is the future that awaits the A’s should SB 4 pass. How is this possible? How could a simple piece of legislation impact the A’s that much?

To find the roots of the answer, one has to go back to 1986. That’s when the Tax Reform Act of 1986 was passed. In it was a provision designed to prevent teams from using tax-exempt bonds to finance stadiums and arenas. The provision called for no more than 10% of the required debt service on such bonds to be paid back using funds from the team or stadium-based sources. Instead of preventing teams from going after stadium deals, the exact opposite happened. Teams felt emboldened to construct deals with cities where the remaining 90% would be paid off using public sources such as sales taxes and tax-increment (TIF). The results were clear: 17 mostly publicly-funded new and renovated ballparks were built between 1986 and 2005. In the mid-90’s, legislation was introduced by the now late senator Daniel Patrick Moynihan (D-NY), but it never went anywhere, and Moynihan soon retired from Congress.

Yet the trend now appears to be a reversal of sorts. While the DC Ballpark follows the normal publicly-funded blueprint, the new ballparks being planned or built for the Mets, Yankees, and Cardinals have a much higher private share. The Cards are relying mostly on privately issued, taxable bonds, while the Mets and Yankees will use tax-exempt funds, but they’ll pay it off using stadium sources. How is that possible? Don’t ask me. Like Field of Schemes’ Neil deMause, I am not a bond lawyer. Furthermore, until someone actually sues to challenge such projects regarding their legality, Mets/Yankees-type deals will continue.

That’s where SB 4 comes in. SB 4 actually comes close to the point of flagrantly violating the spirit of the Tax Reform Act of 1986. This is because its goal is clearly to create a statewide vessel by which tax-exempt funding can be made available to fund all manner of stadiums, arenas, and other venues. The key is that since all efforts would be initiated by the Authority and not a city, county, or the State of California, there would be no needed for messy, complicated mechanisms like, oh, voting or public hearings. That is an enormous hurdle that would suddenly be removed. It doesn’t make it completely smooth sailing, however. There’s still an issue of how the bonds would be paid off once they were issued. That’s where multiple cities get involved.

Since it’s likely that a ballpark built in Oakland, Fremont, Dublin, Sacramento, or San Jose would have the same rough costs due to small differences in land values and stable construction costs, it will be up to each bidding city to sweeten their respective bids to make them the most attractive to the Lewis Wolff and John Fisher. Here’s how that could work:

A city/civic group’s responsibility would be to package the terms of the debt service. The terms would include a mix of the following:

  • Annual rent payments from the team
  • Percentages of in-stadium revenues (tickets, concessions, advertising/signage, suites)
  • Stadium naming rights
  • Pouring rights (non-alcoholic and alcoholic beverages)
  • Revenue from non-baseball events (club rentals, tours, concerts)
  • Ticket taxes
  • Sales taxes
  • Gross receipts taxes (paid by the public on the backend as businesses raise prices to cover the tax)
  • Usage taxes (utilities, hotel, car rentals)
  • Tax-increment funds (or TIF, based on property tax revenue past a “frozen” assessment level, within a specified area or district)
  • Existing redevelopment funds
  • Reduction of the team’s upfront investment

Assuming the market is relatively fluid in Northern California, the way for a bidding city to differentiate itself from the competition would be to make the terms more favorable for the team, by removing or reducing one of the above items from the final list of debt service sources. For instance, a standard practice is for a city to require a flat rent payment per year ($3 million for argument’s sake), plus a percentage of ticket revenue above a threshold of tickets sold (5% of every full-price ticket past the 2,000,000 seasonal attendance figure). A city could reduce the required rent or eliminate that extra percentage. It could eliminate rent 10-15 years early, depending on how the well the debt is being serviced. It could give the team more flexible lease end or buyout terms. The catch is that in order to prevent violating federal law, the team’s source really can’t be more than 10% of debt service. It could become a Safeco Field redux.

But the big kicker comes from the definition of the word “facility.” While “facility” has typically been defined as the actual stadium and little else, for SB 4 the definition has been expanded to include just about anything adjacent to or associated with the venue. In addition to the venue, “facility” includes all of the following:

  • Offices, parking lots and garages, access roads, streets, intersections, highway interchanges, pedestrian walkways, tunnels,bridges, transportation facilities, monuments, restaurants, stores, and other facilities providing goods and services to persons attending performances, meetings, contests, gatherings, or events at a facility.

While building a parking lot or garage is expected, some of the other stuff in the bill is virtually uncharted territory. It could include a new or revamped transit hub, a mall or shopping center, office tower(s), or the most tempting scenario knowing Wolff’s background, a hotel/conference center. Of course, history shows that mixed-use projects like these aren’t always guaranteed successes, and sometimes, they don’t even get off the ground. Interestingly enough, Wolff’s downtown LA hotel project is being built on land owned by Anschutz Entertainment Group. As mentioned in a previous post, the leading sponsor of SB 4 is none other than AEG.

The problem for bidding cities is balancing the need to find a realistic mix of sources to pay off the debt against the desire to make concessions to teams. Should multiple cities get into a competitive bidding situation for the A’s, it could escalate quickly, with each city granting greater concessions with each round of proposals.

And so the turf wars start…

According to a new article by Scott Wong of the Tribune/ANG, Oakland City Council President Ignacio De La Fuente and Alameda County Supervisor Scott Haggerty have gotten into a war of words regarding the future of the A’s.

After an Argus story Friday about Haggerty’s renewed call to bring the A’s ball club to Fremont, De La Fuente called the newspaper to say the supervisor made that suggestion because he feels marginalized about no longer being able toserve on the board that oversees the Oakland Arena and McAfee Coliseum, the current home of the A’s.

“Haggerty is feeling neglected and ignored, and sometimes you have to do things to get your name out there,” said De La Fuente, who added that he didn’t think the A’s franchise is looking at any other Bay Area city outside Oakland to build a new ballpark. “I don’t think Fremont or Pleasanton are in the picture, period. I don’t think San Jose or Santa Clara are in the picture, period.”

But Haggerty said that rather than respond to reports in the media about alternative sites for a baseball-only stadium, De La Fuente should be focusing his attention on Oakland’s budget woes, which have forced the city to “dump” its jail population on the county.

De La Fuente replied that he settled the city’s budget two weeks before it was due. “I’m taking care of my business,” he added.

Haggerty, whose district includes most of Fremont, as well as Pleasanton and Livermore, said he was not intimidated by De La Fuente’s “thug tactics.”

I would have thought that such bile was reserved for online message boards, not the print media. So much for that. The worst part is, it’s probably not going to get easier for De La Fuente and other Oakland-based supporters, especially when San Jose officially gets into the mix.

Fremont Photo Overview

I took new pictures of the two Fremont sites. Here they are, compiled into photo overview format (PDF). I will warn you, gentle reader, that you will probably get bored looking at them, simply because most of them look like this:

No, it’s not a site that inspires the imagination. But it may very well be the best option when all is said and done. (If you look closely, you’ll see the bales of hay in the background.)

One other note – I’ve added all of the photo overviews to the sidebar (right).

Fremont emerges again

From the Fremont Argus: With the number of ideal Oakland sites disappearing quickly, Fremont Mayor Bob Wasserman and Alameda County Supervisor Scott Haggerty have stepped in to start a dialogue with the A’s regarding a ballpark in South Fremont. Here’s a snippet:

“I’m not convinced Santa Clara County or San Jose is finished trying to attract the A’s,” said Haggerty, whose district includes most of Fremont, as well as Pleasanton and Livermore. “Knowing there are vultures out there, I want to do what I can to keep the A’s in Alameda County.”

Wolff was traveling Thursday and did not return phone calls, but he did indicate he was interested in sitting down with the supervisor, Haggerty said.

That certainly gets the ball rolling. The article notes that not only Warm Springs ballpark site is possible, but there may be opportunities at Pacific Commons, a new shopping center that opened last year. Pacific Commons is 2 miles west of the planned BART station, on the other side of I-880. I’ll post pictures of both later today and post a Fremont photo overview.

The news is somewhat serendipitous, because I had no knowledge of the officials’ efforts when I fired off an e-mail to Fremont’s planning department yesterday. I asked about NUMMI, which owns much of the Warm Springs site. NUMMI’s current plans are to build a warehousing and distribution facility to facilitate “just in time” delivery of auto components, though that certainly could change if the aforementioned officials got involved.

Updating my previous post on Warm Springs, NUMMI (as per the Warm Springs Specific Plan) has expressed its desire for Fremont to limit the types of development in allows in the area surrounding the plant. This could actually prove beneficial for ballpark supporters, as they also suggested to the City of Fremont that development plans shouldn’t have housing built immediately north of the NUMMI plant, as residents may not enjoy living next to a 24/7-operating heavy industrial site with hundreds of trucks entering and leaving on a regular basis.

Pacific Commons is another matter. While there land there is vast and ripe for development, it’s not within walking distance of the planned BART station, which is scheduled for completion sometime in 2010.

Update (8:30 AM): I called NUMMI this morning for more on the warehousing/distribution center. No official comment as of yet, perhaps none until late in the day or Monday.

SB 4 and Eminent Domain news

Two more newspapers have written about CA SB 4:

As reported yesterday, SB 4 passed with no opposition in the AEST&IM committee, and is slated to go Assembly’s Appropriations committee, then the floor for a full Assembly vote, and finally the governor’s desk.

Moving over to the topic of eminent domain: The Supreme Court ruled that eminent domain is legal (for non-public purposes) by a 5-4 vote. This clears the way for the DC Ballpark land acquisitions to proceed, and may move the Florida Marlins’ ballpark plans forward if they can bridge the funding gap. Much of the land near the Orange Bowl that would be used for the ballpark is residential, and if landowners aren’t willing to sell, the city of Miami could turn to eminent domain to acquire property.

More on SB 4

Yesterday, CA SB 4 was approved in the Assembly Committee on Arts, Entertainment, Sports, Tourism, and Internet Media (I’ll call it AEST&IM for short) on a 7-2 vote, with 1 abstention. The one local committee member was District 24 Assemblywoman Rebecca Cohn (Campbell), who was credited with the abstention.

The matter is being referred to the Assembly’s Appropriations Committee, where local members include Leland Yee and Mark Leno of San Francisco, Joe Nation of Marin, and Johan Klehs of Castro Valley. From there, it’s short trip to the Assembly Floor and then to the Governor’s desk, since it’s already passed the Senate. While the bill was in the Senate, it was approved by Don Perata (Oakland) on the floor and Elaine Alquist (San Jose) on the floor and in the Senate’s Appropriations Committee.

Surprisingly, there’s been little resistance to the bill, even though the ramifications are enormous. The Orange County Register is one of the few newspapers that offered an editorial on the bill. My read on it is that it gives this new Authority the power to use the state’s credit rating and bonding ability without adding any liability to the state, which I find truly astonishing. If it passes, there will be a bread line at the Authority’s door as every supporter for every conceivable stadium, arena, amphitheater, and concert hall project will be waiting with their hands out. Membership on the Authority’s board will be one of the cushiest positions in the state, as members will be able to pick and choose which projects they’ll support. I can’t handicap the bill’s likelihood of passage, but since the Governor is a pro-business guy with many links to the entertainment industry, I’d have to think there’s a good chance he’ll rubber stamp it. If the bill passes, there are some serious questions beyond the funding issue I brought up yesterday:

  • What rules will they draw up on how to solicit funds?
  • What criteria will they use to determine a project’s worthiness?
  • Will they demand minimum amounts of private investment in projects?
  • What projects would be considered too small or large to fund?
  • At what point would the Authority use or threaten to use eminent domain?

Stay tuned for more on SB 4 as it works its way through Sacramento.