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Can stadiums save downtowns—and be good deals for cities?

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In Sacramento, an urban revival kicked off by a new arena offers a convincing case

Courtesy of Sacramento Kings

In the run-up to the Super Bowl, Minneapolis’s new billion-dollar stadium, a glass-fronted warship docked in a developing part of downtown, will be the subject of broadcast profiles and b-roll. But move the cameras a few blocks in any direction, and viewers would see why boosters believe the stadium’s benefits go well beyond the big game.

U.S. Bank Stadium is just one feature of the city’s ongoing Big Build initiative, a public-private project bringing $2 billion in investment to a 120-square-block area called East Town. By anchoring the stadium downtown as opposed to in a sea of suburban parking lots, the pitch goes, it’s not just another sports arena: It’s a catalyst for infill, affordable housing, riverfront development, and new transit hubs.

It’s the newest twist on the debate over sports stadiums and economic development. Can a new stadium not just generate development, but actually be a good deal for the city? The best case study may be on the West Coast. In Sacramento, where the NBA’s Kings and their tech-savvy owner Vivek Ranadivé just constructed the league’s most advanced arena, the solar-powered Golden 1 Center, new economic-impact reports suggest the stadium has been a boon to California’s capital.

Ever since breaking ground in 2014, the Kings’s new home and the world’s first LEED-Platinum indoor sports stadium has attracted development, dollars, and economic activity to what’s now being branded as DoCo, or Downtown Commons. According to a recent analysis by the Downtown Sacramento Partnership (DSP), in just its first year the arena hosted 1.6 million guests, who spent more than $71 million. Employment downtown has grown 38 percent since arena construction began. It’s also at the center of a constellation of new construction, surrounded by 32 new projects, part of nearly “$2 billion in urban investments in the region’s core since 2015,” reads the DSP report.

Courtesy of Sacramento Kings

As Sacramento continues to grow, rebuking its reputation as a second-tier city to become one of California’s many hot real estate markets, it seems fair to give credit to the arena. Located near a new light rail stop, it’s high-tech, sustainable, and transit-oriented. It’s helped boost pedestrian traffic in the immediate area by 10 percent, according to the DSP report, and the stadium even contributed $3.5 million to the region’s farms and food providers by sourcing products within 150 miles of the stadium.

That sounds like a good deal. But the case isn’t as open and shut to economists. Analyzing the economic impact of such a development is more art than science, they say. And while the Kings and Sacramento leaders make a convincing case for the arena’s impact on a flourishing downtown, it’s important to look at opportunities seized and unrealized alike.

According to a 2017 poll of economists, 83 percent surveyed said “providing any new state and local subsidies to build stadiums … is likely to cost the relevant taxpayers more than any local economic benefit guaranteed.” In the last half-century, stadiums have typically been heavily financed by public subsidies: a 2016 Brookings Institution study found that the $28 billion price tag to construct or renovate professional sports stadiums between 2000 and 2014 relied on $13 billion in publicly financed, tax-exempt bonds.

Can new deals and developments in Sacramento, or even Minneapolis, be exceptions to the rule—and offer cities a square deal?

“There are an awful lot of economic studies that have tried to find stadiums and arenas that have repaid the public for nine-figure construction costs, and it’s never happened,” says Neil deMause, a journalist who runs the Field of Schemes blog and has spent more than a decade covering stadium development deals. “Let’s say it’s a high bar to clear.”

Courtesy of Sacramento Kings

The Kings’s Case

The Golden 1 deal was relatively straightforward, according to assistant city manager John Dangberg and Desmond Parrington, the city’s project manager for Golden 1. Sacramento provided land and promised to cover a fixed portion of the construction costs of the new arena, which ended up totaling $559 million. The Kings covered the rest of the construction costs and purchased land for the stadium and associated developments, including the mostly vacant Downtown Plaza mall as well as 1.5 million adjoining square feet across six square blocks. The city would get a new multipurpose arena, a magnet for downtown redevelopment, and, ideally, increased tax revenue and economic activity.

In August of 2015, the city issued a $273 million bond to cover its share, with a 35-year repayment term. That means an expected city payment, with interest, of $578 million by 2050.

That money won’t come from Sacramento’s general fund. According to Dangberg and Parrington, the city will be able to pay back its $578 total investment without tapping into the general fund. Repayment breaks down like this: $354 million comes from the lease payments from the Kings, $193 million comes from downtown parking revenue, $25 million comes from the property taxes on the arena, paid by the Kings, and $6 million comes from a general hotel tax. Dangberg actually expects additional parking revenue to exceed expectations and cover the hotel tax.

In 2016, then-treasurer Russ Fehr said, “If people don’t come downtown and park, they literally don’t pay for the Golden 1 Center.”

That doesn’t sound bad, especially considering the turnaround seen downtown. The arena and surrounding plaza may be the most dramatic shift—a once-dismal mall is now a city centerpiece and home to an $8 million Jeff Koons statue—but development has radiated outward from DoCo.

New apartments have multiplied: 235 units are complete, 1,862 are under construction, and an eye-popping 17,627 are in some stage of planning. New projects have led to dozens of property deals, including $200 million in property sales downtown in 2017 alone, and tax reassessments, according to Emilie Cameron, communications director for DSP. This economic development brings in even more money for the city, in addition to a deal Sacramento sees as more of a long-term loan.

“We’ve seen more properties change hands in the three years since the stadium was announced than in the decade previous,” Cameron added.

High-end residences have shot up and businesses are relocating downtown. In 2017, Sacramento was named one of the nation’s hottest real estate markets.

“Kudos to the Kings,” says Robert Wassmer, Ph.D., a local economist who runs the urban land development program at Sacramento State University. “This was smart-growth urbanism. You want to build downtown and force visitors to interact with the urban core. The plaza was moribund before [the Kings] came. Now visitors are stopping at restaurants and bringing their dollars into the community.”

Beware statistics and simplification

With so much hard evidence of a rebound, Sacramento seems to have come out ahead. But both Wassmer and deMause suggest that it’s a little more complicated.

The concept of economic impact can be tricky, says deMause. Take the part of the proposal that pencils in parking income to pay back roughly 34 percent of the city’s overall investment. Evaluating how much is going toward the cost of the bond requires considering where money for those parking meters and spaces is going on nonevent days. In effect, that’s lost general-fund income that’s being spent to repay the cost of the stadium without using it.

”The idea that parking fees are free money just as a result of the arena isn’t true,” argues deMause. “You’re cannibalizing the parking fees, and if the money doesn’t come in, that means you have to find another way to pay for it.”

According to Dangberg, since those lots will be maintained by the Kings, and the area was previously empty because “retail in the core had died,” he thinks it’s a good deal.

Another area in which analysis becomes tricky is entertainment spending, where a lot of the economic activity cited by backers of the plan will take place. Measuring total entertainment spending by fans and concertgoers is often presented as if it’s an entirely new income stream being injected into the local economy. While some of it may be, city residents often have a relatively fixed entertainment budget year-to-year, so a new stadium doesn’t mean they’re necessarily spending more; it’s just being spent in a different place. What was spent at the old Sleep Train Arena will simply move downtown.

In addition, while the stadium brought attention to the city in a way that other developments perhaps couldn’t have, it was far from the only catalyst for downtown real estate. Investment in the city’s medical industry, from players such as Kaiser Permanente, brought in the jobs that became early catalysts in driving more interest downtown. Also, both the exodus of Bay Area residents and businesses sick of high costs, and the highly anticipated, 224-acre Railyards development, are driving deals. Sorting out which investment did what, especially against a broader backdrop of investment in downtowns across the country, can be tricky.

The entire investment should be looked at in terms of opportunity cost, says Wassmer. The hundreds of millions being spent by the city may be a catalyst, but was it the best catalyst?

“What else could that money have been spent on?” he says. “That could have been used for parks, recreation, bike trails, affordable housing, childhood immunization. The city could have used that bond money to lower taxes, or increase expenditures. Much of the property tax goes to the county, and sales tax revenue is hard to figure out, since you’re moving it from one place to another.”

Was the Golden 1 Center worth the city’s investment? Even some critics of stadium deal believe it’s had a positive impact on downtown and spurred business and development. Done with transit and sustainability in mind, the building embodies many good planning principles.

“We got a really good ownership group that said this was more than basketball; this was about reinventing Sacramento,” says Dangberg. “Ownership were asking for a fair deal—that’s all we can ask for.”

In the wake of Amazon’s HQ2 deal and a rush for public subsidies, it’s important to work out an standard rubric for looking at the value of these types of economic development deals. Sacramento’s now-booming downtown suggests stadiums can make a huge impact, and both Dangberg and Parrington feel the city is coming out ahead. Other cities have placed bets on similar downtown developments, such as Little Caesars Arena in Detroit,

DeMause would argue that both Seattle and Los Angeles, having recently agreed to new stadium deals that involve little to no public funding, imply the public should question whether cities should put any money down for such large-scale development deals. Seems like a lesson those racing to impress team owners—and Jeff Bezos—should take to heart.