Tuesday, August 22, 2006

Thinking about the Future of Sacramento

Tom Sullivan is a radio talk show host in Sacramento and usually is pretty intelligent. In an ad for the station he works on (KFBK) he is quoted as saying "we are the 18th largest area in the country and we need to decide about what we want to do." I think that is correct. But I disagree with his conclusion about how we should think about our future.

Sullivan would argue that part of the long term plan for our area is to accept the bogus deal to build an arena in the former rail yards near downtown.

As I thought about Sullivan's basic premise I looked at the data of where we are in terms of size. The city of Sacramento is the 37th largest city in the country. But the SMSA is the fourth largest metropolitan area in the state. Clearly, if you look at the 36 cities ahead of us there are a lot with which we will never compete - we are not going to be New York, or LA or Chicago. By the way, Fresno is larger as a city than Sacramento - although the SMSA of Sacramento is considerably larger. But there are a whole lot of other city areas that are larger than ours without an NBA franchise. We are the 28th (not the 18th) largest metropolitan area in the country. So while it is great to do a checklist of things a big, or moderately big city needs to have, every city does not need every item.

Ultimately, there are a number of things that make a city or a metropolitan area more desirable. An NBA franchise is certainly an amenity that some people would like to have. But if this is a metropolitan asset then why only apply the financial requirements to the city and county of Sacramento? The deal we have been offered applies only to that political subdivision. The mix of issues and opportunities in an area all contribute to the reputation of the area. But in any decision like this there are opportunity costs - if we don't take a bad deal are we better off. In this case the Maloofs are portrayed by the supporters of the deal as public minded. Why should the citizens of Sacramento be forced to pay for the Maloof's public mindedness. They are in this business for the money and they stand to make a lot of it in this transaction. I am not against profits, but here the balance between the the socialization of risk and the privitization of gain is so off that anyone with a calculator can see how truly bad this deal is.

On the weekend I had the opportunity to speak with one of our political leaders in the region who is a good friend. He argued that it was too late for us to think about whether the deal that was negotiated in our behalf is a good one (he admitted it is a lousy one.) He also argued that if we do not accept this deal we will not get another opportunity to have another NBA franchise.

I am not sure about the logic. He did suggest that if we think the deal is not a good one - that we can always vote it down - but with the consequences that if the thing goes down, we won't get a second chance. The fallacy of that logic of both premises is huge. First, franchise owners are business owners. They will ultimately make economic decisions to improve their business. If Sacramento is a good place to operate then they will come back to the table and negotiate a better deal. If they think they can get a better deal somewhere else (either now or later) they will move the franchise. Sacramento, since the Kings have been here, has been a very good venue. For a long time the successive owners claimed that we had continuous sellouts. That is not true any more. In the couple of decades that the Kings have been here, their leadership has almost continuously made bush league decisions on how to build a winning franchise. The civic prestige of being an also ran franchise escapes me.

Second, why should we be forced to accept a poorly negotiated deal simply because the people who "represented us" did such a poor job? The financial structure of this deal is lousy - even for a second tier market.

The supporters of the deal also argue that using the railyards is a brilliant stroke that will not happen without this form of financing. There are two problems with that logic. First, one need only look at an aerial map of the region to recognize that the natural path of development would extend into that venue very quickly. The area is a big tract of land close to a downtown that has grown very quickly. The downtown towers project (which sold out very quickly) and the vitalization of West Sacramento are indicators of the potential popularity of that area. But the area is not without problems - the expected toxic issues are going to be pretty large. The way this deal has been structured ALL of the costs to mitigate those problems will be borne by the taxpayers. A more evenly structured deal would spread some of those costs around.

In the end, I am hopeful that the Sacramento Taxpayers Association or some other public minded group will file suit and be successful in challenging the absurd notion that this new tax is a general purpose tax and thus subject to the 50% rule - this is clearly a tax proposal to do one thing. Ultimately, if the projections for building the arena are optimistic (and they will be) the remaining tax revenues will be used to do things like toxic waste cleanup or cost overruns. The 2/3 vote, which supporters are trying to avoid, is the appropriate standard here. If a suit is successful, voters are likely to reject the idea in huge numbers - but that might encourage the Maloofs (if they want to think creatively) to begin serious negotiations where a blank check is not offered to them. If not, they leave and the region continues to grow, albeit without a second rate basketball franchise that is subsidized by mounds of tax dollars.

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