Wednesday, 29 April 2015

Sacramento Performing Arts Proposal Keeps Growing. Is Arena Fever Affecting the City's Fiscal Discipline?

When asked about the Sacramento Arena’s public subsidy, I sometimes mentioned that some of the fiscal risk was indirect: subsidizing an entertainment center makes it harder for a City to say “No” to other long-term financial commitments - whether that is requests for other facilities or employee contracts - as well as deal with its unfunded liabilities.

Not long ago, Sacramento officials were saying they didn’t have the money to take on a $10-50 million renovation of the Community Center theater, and at last nights City Council, it appears as if City leaders are now considering a City-financed $200+ million performing arts theater.  I watched part of the presentation to the City Council meetings presentation from the performing arts task force, and saw appeals to civic pride from the task force members while financing discussion was vague and deceptive.  [Although I appreciated Councilman Hansen’s comments about not losing sight of a less expensive Plan B, and the operating budgets of local performing arts groups.]

Here are excerpts from a Sac Bee and Capital Public Radio coverage of the optimistic talk in last night’s meeting followed by an excerpt from a Bee article just a year and a half ago that was pessimistic about funding the smaller renovation project

A task force exploring the need for a new performing arts center in downtown Sacramento has identified four potential sites for a 2,200-seat theater, but needs up to six more months to figure out how to pay for what would likely be a $200 million project.
During a hearing with the City Council on Tuesday night, task force members said they had determined that replacing the aging Community Center Theater would help the city compete for the musical and performance acts that are beginning to be lured to more modern sites in Davis and Folsom.
Mayor Kevin Johnson and the City Council directed city staff to work with the task force over the next six months to develop financing options, investigate locations that are under consideration, put together design plans for the theater and begin the process of requesting proposals from groups to operate a new theater.
 Garry Maisel, president and CEO of Western Health Advantage and chairman of the theater task force financing committee, said the project’s funding would likely be a “complicated puzzle” of public and private sources. He raised the possibility of a sales tax measure on the 2016 ballot to fund regional arts groups, as well as using state economic development loans or the city’s hotel tax to help cover the costs.Private sources include naming-rights deals, corporate sponsorships and individual donations.
“If you put the pieces together correctly, it will work,” Maisel said.

The Mayor’s Performing Arts Theater Task Force director, Richard Rich says a new building would benefit the city more than a renovation of the existing Community Center Theater.
“We can do as little as possible and spend tens-of-millions of dollars to take a deeply-flawed situation and make it slightly less-flawed or we can embrace the renewed spirit that this city has and we can give our citizens a center that reflects their pride in the city.”
From a November 2013 article on a less costly renovation,
Some city officials – including the city’s treasurer – caution that it might make fiscal sense to wait to make improvements until millions of dollars from a key revenue source earmarked for the project are available.
A tax placed on hotel rooms would serve as the foundation for the renovation project, but more than $8 million of that revenue is being used annually to pay off debt for the expansion of the Sacramento Convention Center in the mid-1990s. The convention center bonds will retire in 2021.
The $50 million renovation would require annual bond payments of $3 million, city Treasurer Russ Fehr said. The bonds would be backed by the general fund, but the city anticipates using hotel tax money to repay them. While those revenues are expected to increase in the coming years, Fehr said the city should wait until more of the money is available.
The city’s plan to help finance a new downtown sports arena is also playing a role in Fehr’s cautiousness.
Hotel tax revenue would act as security for the bulk of the city’s $258 million contribution to the project, should the primary financing method – revenue generated by parking operations – fall short of projections. The availability of the hotel tax as an arena financing security will also serve as a credit enhancement for the city when it issues bonds for the arena project, Fehr said.
The City Council voted earlier this year to devote $8.5 million from shuttered tax assessment districts to the theater project. City officials hope that naming rights and fundraising efforts will help close the gap, but acknowledge they are well short of being able to finance the entire project without taking on debt.
“For strictly financial reasons, I wouldn’t recommend debt financing (the theater) at this time except for the necessity to proceed due to the disabilities issues,” said Fehr, who will brief the City Council tonight on the theater financing issue. “We can do this at a minimal risk to the general fund, but I think we should wait a while before we do it.”
Councilman Steve Hansen, whose district includes downtown, said he will ask city staff tonight to provide details on what renovations can be made at different funding levels. He said he also wants to explore forming a nonprofit agency to take over operating the theater and raising money for the upgrades, saying such an entity might have better luck in soliciting donations than the city.
Hansen said he wants the City Council to vote on a renovation plan early next year.
“It’s a complex question, and I wish there was a clearer answer,” he said. “I believe ultimately we’ll renovate this theater, but right now, I don’t think anybody has made a strong case for one specific plan.”
Performing arts advocates argue the city should move ahead with the full $50 million renovation plan.
Richard Lewis, the executive producer of the California Musical Theatre, said the $50 million project – which would include improvements to the theater’s seating, restrooms and loading docks – would represent “not a 10-year fix, but a 30- to 50-year fix, in my view.
P.S.  4/30:  Personally, I have bought more tickets at the Community Center theater and Mondavi Center than Kings games, and would enjoy a new theatre in Sacramento. 

However, the City Council’s decision to subsidize the Kings’ arena means that Sacramento is less able to afford the performing arts project than before, not more.  Developing a viable financial plan may be an insurmountable obstacle for the project, but the tone of the conversation is makes me afraid that arena-fueled economic optimism threatens to cloud the City's overall fiscal planning. 

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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