In order to build a downtown arena, Sacramentans will have to give up that which they hold dearest: free parking. The funding plan requires expansion of on-street metering downtown, and will increase parking rates at city lots. The arena’s presence dramatically changes the economics of private parking lots, in ways that threaten the main funding source for the arena.
By releasing the term sheet at the absolute last minute, on a Saturday night, followed by a Monday city holiday and a crashed City of Sacramento website, the opportunity for public review is so limited that it is effectively nonexistent. Three days is simply not enough time for a detailed look at the term sheet, but it was sufficient to find a major flaw in the funding plan.
Arena Construction Funded by Parking Plan
The city’s contribution to the arena plan includes $38 million in private land given to the arena developers, the $5 million in Sheraton MOPA Fund money, and $212.5 million in bonds to be repaid by future parking revenues.
What repays those future parking revenues? The city’s public-owned parking spaces downtown, both city-owned lots and street parking. Today, the city owns 5721 on-street parking spaces between F Street, P Street, Front Street and 17th Street, and 8580 spaces in city-owned lots and parking structures, for a total of 14786 city spaces. Of those 8580 lot/structure spaces, 3700 are inside Downtown Plaza and will be given to the developer. Some will be demolished, others will become a portion of a 1000 space “VIP” parking area inside the arena. 181 of the city-owned spaces are on Lot X, the city block between 3rd, Capitol, 2nd and N Street, and Lot Y, at 2nd and O Street near the Crocker Art Museum, with 85 parking spaces. This leaves 4,614 off-street spaces, or a total of 10,335 city-controlled parking spaces—30% fewer spaces than currently exist.
City Parking Supply Will Shrink—But Profits Expected To Triple?
The revenue generated by the city’s parking spaces (not just downtown, but citywide) creates a $9 million profit to the city. In order for the arena financing plan to work, it must generate enough money to pay off that $220 million debt in 35 years, and replace a portion of the $9 million in lost revenue that currently goes to the General Fund. A $220 million bond with a 35-year term and 5% interest requires payments of about $16 million per year. The “backfill revenue” chart on the Term Sheet assumes $3 million from increased parking revenue and $625,000 from parking revenue during ESC events. Thus, in order for the arena plan to break even, parking profits have to increase from $9 million per year to $20 million per year, with 70% as much downtown parking, effectively a tripling of parking revenue profits while losing one-third of the parking spaces that supply the revenue. The only way to accomplish that goal is to dramatically raise parking rates, and increase metered hours for the on-street parking spaces that represent more than half the downtown parking supply.
Metered Parking Hours Must Extend To Pay Debt
Currently, except in a few high-traffic areas like around Music Circus, street parking in downtown Sacramento is unmetered after 6 PM on weekends. This means that no revenue is generated at night or on weekends. In order to increase revenue and pay for those bonds, Sacramento’s street meters will have to run until midnight or later. Otherwise, arena visitors can park on the street without paying—at least, the first 5721 visitors to arrive downtown, minus spaces occupied by the cars of downtown residents. This practice is common in cities with high demand for parking spaces at night. Of course, visitors could always park farther from the arena, such as in Midtown, and walk downtown, if Midtown parking meters stop charging at 6 PM. If Midtown’s parking spaces get overly clogged at night, they might have to charge for late-night parking too, just to make space for Midtown visitors. And because there are more residents in Midtown than Downtown, most of whom do not have off-street parking, arena visitors will have to find spaces among Midtown residents’ cars and the cars of those visiting Midtown restaurants, clubs and theaters. There are only about 4500 street parking spaces in the Midtown business district, and a 2006 City of Sacramento parking study found that Midtown’s street parking at night is almost as crowded as Downtown’s street parking during the day.
Private Parking Competes with City Parking
Under the proposed arena plan, private parking lots will not have to pay any additional fees. At Thursday’s meeting at City Hall, City Manager John Shirey said that the term sheet will not include a tax on private parking lots. This means that, while an arena will bring much revenue to downtown Sacramento’s private parking lots, none of that revenue will go to pay off the new debt for the arena. Since public parking will become more expensive, private lots that charge less than city lots will draw customers. Because this plan makes parking lots much more profitable, property owners in the central city will have more incentive to convert their downtown properties into parking lots or parking structures, vs. new amenities like housing, retail or offices. Parking lots are a poor generator of city revenue, and a dreadfully poor use of premium downtown land, but if they bring the most immediate profit, parking will become the “highest and best use” for many downtown lots.
The term sheet also gives the new arena operators several downtown Sacramento properties for development, including 8th and K Street, the aforementioned Lot X, Lot Y at 2nd and O Street, and part of the 3700 Downtown Plaza spaces (presumably, about 1000 will not be demolished.) The instant profitability of downtown parking means that, rather than developing these lots, the ESC development team could create an instant, untaxed revenue stream by converting these areas into parking lots.
How Will Nighttime Metered Parking Affect Downtown and Midtown Businesses?
Few subjects in Sacramento are as delicate as the issue of parking. Businesses in downtown and midtown Sacramento generally do not have their own parking lots, and consider free street parking in the evenings essential to draw visitors downtown at night. Past plans to extend metered parking hours or restrict parking in residential areas near business districts inevitably meet enormous resistance from the business community, business associations, and downtown visitors used to parking on the street at night without charge. This would all change with an arena. Yes, there would be many more downtown visitors coming to the arena, but many who may have come to downtown or midtown events might choose to visit other neighborhoods if parking downtown (or midtown) at night means paying $20-30 in a parking lot, or even parking at a meter on the street.
How Can The City Limit Its Economic Risk?
The funding plan depends on people using city lots, rather than private lots, to generate revenue, but does nothing to ensure that those city lots will be used. It gives the developers large plots of downtown land but does nothing to ensure that these lots will not become new parking lots, as much a blight on the urban landscape as a vacant lot. There are three simple modifications of the term sheet that can increase city revenue, create a new funding stream, and help ensure that the lots given to the arena team have a higher and better use than parking.
First: Add an event surcharge to private lots within 1 mile of the arena, and place a moratorium on new parking lots. The arena will create massive new numbers of nighttime visitors and an enormous new income stream for private parking lot owners. In addition to the city’s spaces, there are about 30,000 spaces in privately owned lots and structures. Many sit vacant at night, but this new opportunity for evening business will open their doors. A 5% surcharge, like the surcharge proposed for arena events, means that parking operators that benefit from the arena’s presence will also contribute to its financing.
Second: Add a requirement that the ESC investors do not use properties given by the city for new parking lots. If these investors already plan on uses other than parking, adding the requirement that they not use them for parking is no loss to them. The lots closest to the arena site will become prime real estate for adaptive reuse or new construction, and a simple restriction on the site will help ensure that construction there goes vertical instead of remaining horizontal. The exception to this rule could be the three lots (Downtown Plaza lots, Lots X and Y) that are currently in use as parking structures. Charging the same 5% surcharge to the ESC operators mentioned in my first point will contribute to paying off arena debt—under the current agreement, the arena operators are not obligated to pay any new fees for use of these spaces.
Third: To protect Downtown and Midtown businesses and facilitate parking for their customers, create a citywide validation program for city lots and street spaces. This would work similarly to validation programs at Downtown Plaza: buy something at a Downtown or Midtown store or restaurant, and receive hours of validated parking at city lots. A citywide program will create uniformity and simplify a validation program. This will encourage people to use city lots or street parking, allow visitors to avoid some or all parking charges if they patronize central city businesses, and limit displacement of downtown business patrons by arena visitors.
. I still think Seattle ends up with the Kings. Sacramento will get the promise of being the next city in line...
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