Wednesday, July 4, 2012

Ordinance Number: 122357 (I-91) is useless, please repeal it

Seattle City Council,
It is with great sadness that I inform you that the lobbyist that doesn't live in Seattle can no longer make sports facilities decisions for you.

The two opportunities the city could attempt to apply Ordinance Number 122357 ended in failure. 

The arbiter of what is, or isn't, Ordinance Number 122357 compliant has made assumptions that are not actually written into the law. He often speaks of "the spirit I-91" the law, unfortunately, that imagining opens the city up to being sued in King County Seperior Court.

There is no such thing in current law as "I-91", and especially not "spirit of I-91".
There is the resulting law, Ordinance Number 122357. 

Ordinance 122357 should be repealed.

In the first opportunity to use the law, Chris Van Dyk mistakenly assumed that just because he says Key Arena is worth nothing as a property, and nothing to the NBA (KJR 950, 7/2/2012). That opinion doesn't make the Storm lease Ordinance Number: 122357 compliant.

Section 2 of the ordinance states:  
Fair value is defined herein as no less than the rate of return on a U.S. Treasury Bond of thirty years duration at the time of inception of any such provision of goods or services, real property or lease; and further, such return shall be computed as the net cash on cash return, after interest and any financing costs, on the depreciated value of the cash investment of the City of Seattle in such goods, services, real property or facility, and shall exclude all intangible, indirect, non-cash items such as goodwill, cultural or general economic benefit to the City, and shall also exclude unsecured future cash revenues.

See, it does not matter that Key Arena as a property has depreciated to zero, because it has "lease" value that can be estimated.

Here is an example of Key Arena's value when leased.
The City of Seattle entered into an agreement in 2008 with AEG before signing the Storm lease where AEG paid the city $1.8 million dollars the first year, then $2 million a year following (not zero). 
Key Arena has lease value. 

Was "fair market value" actually applied to the Storm lease?

Further, the Storm lease has a provision that states the City of Seattle pay for all of the team's operating costs, for up to two years, during a Key Arena remodel (Storm Lease, 2009). 
That's a heck of a risk, 2 of 10 years of the lease might actually cost the city hundreds of thousands of dollars.

So, with that kind of uncertainty, how could the lease reasonably have a forecast a rate of return of a 30 Year Treasury Bill (2/6/2009, T-Bill rate = 3.7%)?
Was a 1% risk factor included in the evaluation of the Storm proposal?
I see no reference in the lease.

Chris Van Dyk worked with the Storm and "believed" Key Arena was worth zero, so he gives the Storm lease "his" approval (KJR 950, 2012).
He's wrong in his assumption.

This kind of I-91 belief system shows up in councilmember's thinking.

The Storm history is interesting. Staff remind me that we did that as a "belt and suspenders" approach; that we didn't technically need to exempt the Storm, but chose to just in case of an odd-ball challenge to the lease. The approval of the Storm lease, negotiated to include public benefit and to recognize the condition of Key, still strikes me as different from investing in the development of a new arena. I don't believe we've put the Seattle University or Stars on Ice or other Key Arena shows through an I-91 filter. (Sally Clark, email to me, 7/1/2012)

No, the Storm lease was not "belt and suspenders", but a direct challenge by me to councilmember Tom Rasmussen on the ability of the Storm lease to pass the test in the law, and if there was a double standard between the approach taken with the Storm and the approach that would be taken with the Sonics.

Again, Ordinance Number: 122357, Section 2:
. . . and shall exclude all intangible, indirect, non-cash items such as goodwill, cultural or general economic benefit to the City . . .

The law does not identify Key Arena specifically, and it explicitly excludes "intangibles" and "general economic benefit".
I challenged the lease in an email to Tom Rasmussen the morning of the committee meeting 1/27/2009, and I am an "odd-ball" that absolutely would have challenged the Storm lease in King County Superior Court, per Section 5 of Ordinance Number 122357

Sec. 5. Any resident of the City of Seattle shall, by virtue of his/her status as a taxpayer in the City, have legal standing to challenge, in King County Superior Court, any act, lease, ordinance, or resolution taken, entered into, or enacted by the City of Seattle which allegedly violates this initiative, within ninety (90) days of such act, lease, ordinance or resolution; such a resident shall be entitled to injunctive relief preventing said act, lease, ordinance, or resolution from becoming effective, without the necessity of any bond being posted, so long as the elements necessary to obtain injunctive relief pursuant to RCW 7.40.020 are established to the satisfaction of the Court.

I alleged that the lease was flimsy, the due diligence was lacking, and the council was prepared to gloss over the law, the poor accounting for lease value, and fail to take into account the potential cost of two years revenue from the city, and for reasons expressly prohibited in Section 2, "good will."
I'm happy to have the Storm in Seattle, I am ok with their lease even though I knew the Sonics would not be afforded the same level of consideration (the inevitable double standard).

What I was not, and still not, happy with is Ordinance Number: 122357. 
It is poorly written, open to subjective interpretation and uneven application, and worse, requires elected representatives to consult a lobbyist that is not a Seattle resident to get an approval on city business. 

Chris Van Dyk has no business questioning or approving the "alleged" validity of any proposal under Ordinance Number: 122357 for two reasons; 1) his errors put the city at risk, 2) under Section 5 he does not have a right to challenge the application of the law, he isn't a citizen of Seattle.

The second opportunity to apply Ordinance Number 122357 has non-resident, Chris Van Dyk, again, deciding if the current arena proposal is "I-91 compliment".
The short answers are, contrary to Mr. Van Dyk's belief , that Ordinance Number 122357 can not be applied (as the mayor and council staff have pointed out), and he does not have legal standing to challenge the proposal. He admits that he doesn't really understand all the details but just "knows" that if Chris Hansen just put in a little more then the deal would be "I-91 compliant" (KJR 950, 7/1/2012).

The king has no clothes.

Please, stop the "I-91" charade. 

Stop getting the blessing of a lobbyist on council decisions. He is not applying the law as it is written in his opinions.

Stop applying criteria to the current proposal that you could not possibly have been able to apply to the Storm lease.

As arbitrary and capricious as it is, an option the council is going to consider ignores Ordinance Number 122357, while pretends to be in the spirit of I-91, by selectively using "fair market value" out of the law while ignoring the definable threshold, a 30 Year Treasury Bill. 

Really, picking and choosing?
Well, what is fair in comparison to what Chris Van Dyk thought the Storm lease was living up to?
The number is 3.70%

Why 3.7%? 
T-Bill + 1% "risk" premium is 3.70%. 
Coincidentally, 3.70% was the 30 Year Treasury Bill rate when the Storm lease was approved by council Treasury, 2009).

That is as "in the spirit" as any other imaginary number council is pulling out of the air.

The law must be repealed. It has too many flaws.
A feature of the law, non-profits and other forms of entertainment are completely excluded from comparative analysis.
As the Seattle Opera may show us, a non-profit business model is not immune from an ability to provide events as anticipated. 
Is there a good reason the non-profits should be exempt from having their ability to operate questioned, given the broken business model that depends on wealthy benefactors to operate and public hand outs to fund infrastructure?

Even though they have a reduced rent, and are often not expected the maintain the facilities they use, non-profit Arts and Entertainment still struggle to operate (The Stranger, 2012). 

Is it really ok to exempt non-profits from the kind of analysis that examines their ability to operate during the length of the bond or lease the city commits its resources to?
Maybe not (University of Chicago, 2012).

Here are some options (surprise, letting the law continue is not among them):
1) abolish Ordinance Number 122357 and replace it with nothing.
2) abolish Ordinance Number 122357 and replace it with useful criteria.
3) abolish Ordinance Number 122357 and replace it with useful criteria that also has limited application for other arts and entertainment, as will as non-profits.

4) An "odd ball" citizen could write an initiative that does #3 in a heavy handed way.

Have a great day,
Mike Baker

Sent from my iPhone (yes, I really did type this on my iPhone)
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Ordinance Number: 122357

(ref Storm Lease, city compensation due to remodeling)


A. Redevelopment Impacts

The City will keep WBCOS reasonably informed of the City's efforts to redevelop KeyArena or have an NBA or NHL team as a tenant at KeyArena. The parties acknowledge that it is not feasible to redevelop KeyArena without impact on WBCOS, including some potential negative impacts; however, in the event of redevelopment, the City will use its best efforts to minimize negative financial and operational impacts of renovation and construction projects on WBCOS, subject to the City's other financial and policy considerations. The parties recognize that a redeveloped KeyArena and additional tenants can be beneficial to both parties, and share the goal of a successful long-term tenancy for WBCOS.

B. Comparable Premises After Any Redevelopment

Should any significant alteration or redevelopment diminish the City's ability to provide a portion of the Premises provided to WBCOS herein, upon completion of the alteration or redevelopment, the City shall provide the WBCOS a portion of the renovated premises with equivalent operational value.