Seems like The Oakland A’s Howard Terminal Ballpark Project has something in it that causes the generation of media stupidity like nothing else.
I received an email from the East Bay Stadium Alliance that was touting one opinion piece, and it went like this, (where I will remove names):
Today, an editorial page editor of an East Bay Publication, shared a thoughtful essay on the disingenuous nature of the A’s financing structure in their recently released Howard Terminal proposal. In the piece the author reminds Oaklanders that the proposed stadium, 3,000 residential units, hotel, indoor performance center and about 1.8 million square feet of commercial and retail space “would be a development deal that includes a ballpark, not the other way around. Kaval promises the team would provide $450 million of community benefits. But taxpayers, not the A’s, would foot the bill for those benefits — and the value is minimal because the amount is stretched over 45 years with no adjustment for the lost value due to inflation.” Our coalition has long understood that sports franchises often “promote the false rationale that pro sports boosts local economies” and that “falling for that claim can be costly.” The A’s messaging and focus on the the project’s potential for providing community benefits from increased tax revenue is misleading. We couldn’t agree more with Borenstein’s assertion that “Kaval portrays the team as a paragon of charity while proposing using public money to fund the supposed generosity,” and that “The A’s never intended to fully fund this project. Not even close. It’s time for city officials to call him out on this bad deal for taxpayers.”
What the author wrote comes under the heading “TOTALLY FUCKING STUPID!” and for one simple reason: the line “Kaval promises the team would provide $450 million of community benefits. But taxpayers, not the A’s, would foot the bill for those benefits — and the value is minimal because the amount is stretched over 45 years with no adjustment for the lost value due to inflation.”
Well, that’s wrong. The “amount is stretched over 45 years with no adjustment for the lost value due to inflation” is used to float a bond issue to provide the money for projects, now. That’s done daily around the world: it’s called municipal bond financing, and the author would do well to take a class in it, or just ask me how municipal bonds work.
In this case, the agency that’s not yet created by the all-too-slow City of Oakland would form a bond issue using a debt coverage ratio of 2, or two times the expected revenue. So, if we’re looking at 40-years of tax increment financing revenue based on the Oakland A’s property tax payments, and assuming a base-year-assessed value of a low of $2.3 billion, and a Proposition-13 allowed two-percent annual increase, we would see $560 million in tax increment revenue by the 40th year.
We take that projected estimate, divide it by two for the debt coverage ratio, and get $280 million. So, we can float a bond of $280 million based on the government-allowed increase, alone. And SB – 293, or what I call “The Project Bible”, allows that bond money to be used for projects like affordable housing, or even services and education (if the plan is formed in a way that cleverly adds those needs taking advantage of some useful loopholes in SB-293), citywide.
Yeah, the whole damn city of Oakland.
Anyway, the reason for the debt coverage ratio of 2 is to have a giant cushion between bond issue cost and total revenues taken in. And the fact is, the annual rate of growth of property values in Jack London Square was approximately 7 percent between 2015 and 2019 – that’s way above the 2 percent base, and so more revenue would be generated. How much more? Well, let’s say the increase annually was an average of 4 percent per year over 40 years, and not 2 percent – that comes to $1,555,960,460. And remember, that’s based on the cost of the stadium, alone, and without any other private development.
So, with respect to the tax increment revenue, learn to think horizontally and vertically. Horizontally with respect to increase in the base year assessed value by adding projects beyond the stadium itself and also enlarging the TIF boundary (where property tax is paid to the new agency by the building and land owners within it). Vertically, by understanding the impact of rate of increase in assessed value (not market value) over time.
Which brings me to my other point: the whole math can’t work without the A’s paying a property tax annually – the author of the TOTALLY FUCKING STUPID piece forgot that. The trouble is, the Oakland A’s didn’t explain it correctly, because it’s all new to them, and they did not ask Oakland Mayor Libby Schaaf to establish a point person for the project.
If the A’s stuck to the program there would be less trouble. All Dave Kaval has to do is say “We pay property taxes to the City and an agency and they use that to float a giant project bond for community needs”. There. Isn’t that a lot simpler? Yeah.
The whole thing is screwed up and a total embarrassment to Oakland’s great history of innovation in municipal government and afforable housing development. A history damaged when California Redevelopment Law was killed in 2011. If we maintained it, Oakland would have generated and used over a billion dollars of TIF revenue for affordable housing by now, and we would have no giant homeless problem.
Take the damn red pill: the project is such that a sports development facility can help Oakland’s economy and SB-293 is the key. The East Bay Stadium Alliance organization of friends of mine should stop trying to kill the very golden goose they need to survive technical change in the 21st Century.
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