On the Record: Albro on Coal Trains; O'Brien on What He Needs to See from the Investors
Erica already posted a couple of follow-ups (here and here) to our arena forum earlier this week.
I wanted to add two things.
1. When we pushed Seattle Port Commissioner Tom Albro about the seeming contradiction between the Port's traffic concerns re: the arena and its nonchalance about the disruption that the proposed coal trains would have on Port operations, Albro said it wasn't the Port's place to have a position on the proposed coal train.[pullquote]I mean, really? Really, we’re going to make this an issue about coal trains?—Seattle Port Commissioner Tom Albro[/pullquote]
According to a chilly report commissioned by the city, the transport will run between 16 and 18 trains per day (one every 75 to 90 min, basically), each potentially 1.5 miles long, taking roughly three to seven minutes to pass through the seven train crossings—from Spokane Street to Wall Street—in Seattle.
"The issue of coal trains is not something the Port of Seattle has even taken up," Albro said. "We recognize significant impacts in local communities, and I think that those conversations and deliberations are appropriately happening there. I can’t speak for my colleagues because it hasn’t been a matter on our agenda."
That doesn't quite square with the Port's earlier official statements. If the coal train issue hadn't been "taken up" or hadn't been on the Port's agenda, why did Port spokesman Peter McGraw definitively tell the Puget Sound Business Journal that there was "no concern on the Port's part of increased activity disrupting Port operations" from coal trains.
At our forum, Albro, added:
What I can say is there’s a difference between what Burlington Northern San Francisco [does] on rail lines they own [and local policy impacts on Port traffic] that, frankly, interstate commerce laws provide them and afford them the rights to do so. Railroads, believe me, are favored entities in our country, and they have been, and states and localities have a difficult time standing in their way.
That’s different than what we do to ourselves. Yeah we have challenges, and it doesn’t matter what’s in the train. A train going across the track and closing a road affects a port terminal and its ability to operate. We don’t need to compound that. We don’t need to add more and more of this stuff on top of the things that are already happening and complicate our ability to make it so manufacturers and agriculture producers in our region and state can access the global economy. That’s what it really comes down to.
As to McGraw's statement, Albro said: "I mean, really? Really, we’re going to make this an issue about coal trains? What about a million new vehicles into this SoDo arena? What about the fact that we’re putting this arena there, and based on the proponents numbers, we will have somewhere between 256 and 312 events a year in that area? It is a tremendous impact. I’m worried about the million automobiles that are going to be added to that area and how we’re going to mitigate that. That’s the issue."
Albro's numbers are extrapolated from Chris Hansen's transportation study: There will be 700,000 (or 1 million, if the Sonics make the playoffs) trips in and out of the city annually, based on Hansen's study's finding that there will be between 71 and 100 events in SoDo annually drawing between 5,000 and 6,000 cars.
2. Heading in to the forum, I was encouraged by the letter that the City Council sent to arena deal maker, San Francisco investor Chris Hansen, on Monday—particularly the demand the council made about getting more information from Hansen about deals between his investor group, ArenaCo, with the other "Co's" in the proposal.
While the city is getting some solid assurances from ArenaCo, which will own the proposed $490 million SoDo arena, there are two other holding companies involved—known generically as TeamCo and HoldCo. I have been concerned that, yeah, while ArenaCo is signing a deal with the city that makes pledges about meeting the debt service and staying for 30 years, those obligations could be compromised by ArenaCo's deals with TeamCo or HoldCo.
For example, will ArenaCo's terms with another lender end up trumping the terms with the city?[pullquote]What are the details of the commitments between ArenaCo, NBA TeamCo, and HoldCo? And how will they help or harm the agreement between the ArenaCo and the public? [/pullquote]
Or, regarding the all-important non-relocation agreement in the Memorandum of Understanding that the city is looking to sign with Arena Co., the MOU merely says [emphasis mine] the "non-relocation agreements with the city and county that will include specific performance, liquidated damages" ... meaning, those specifics are TBD at a future date between Hansen and NBA TeamCo.
That's a bit nerve-wracking.
So, I was encouraged that the city council's letter called for more a more detailed account of ArenaCo's plans with the other parties.
At present, we have no direct knowledge or confirmation of your basic business plan, level of capitalization or how dividends or distributions to the investment group will be constrained to protect the City’s financial exposure. If the City is to enter into this public-private partnership, we should expect to see the same information that all your other partners and commercial lenders will have before making their investments.
But I was a bit crestfallen when I asked Seattle City Council member Mike O'Brien at the forum what he needed to see and know to satisfy the letter's demand for transparency.
Here's what he said:
I think there’s just a lot of things to be determined in the future. What we want to see, a couple things. We know that the people that are talking about investing in this team as individuals have deep pockets, but we also know that if something goes south, we don’t get to go in their house and repossess their car to pay for it. And so they have these companies set up, we term them Arena Co. and Team Co. and Parent Co. Those provide the kind of security, the backstops if some payments don’t go through.
I think the issue for us is we want to make sure there’s enough equity, enough assets in those companies, in those corporations, so that if we have a few bad years, if some of the promises that we’re expecting to do in some of projections don’t come true, then we have backing on that.
But we haven’t seen to date is how much they plan to put in there. And so, that’s going to be a conversation. So what I expect to get to you is in an MOU that I’m going to be comfortable signing and I think the council will be comfortable signing would be some specifics about how much equity need to be in those teams and in what form that is.
While knowing more about the financial status of the other entities and investors is good info to have, it doesn't get at the heart of the problem; namely, what are the details of the commitments between ArenaCo, NBA TeamCo, and HoldCo? And how will they help or harm the agreement between the ArenaCo and the public?
I was spooked by O'Brien's answer. Was he only concerned about knowing the investor's financials? Isn't the bigger blind spot not knowing what Hansen’s deals are with other entities? It's not just a matter of how much money the investors have; they could have all the money in the world. The question is: Is it committed to the public in writing?
I asked O'Brien just that. And at first, perhaps unwittingly, he identified some of the real problems with signing the MOU now [namely that ArenaCo doesn't actually exist]. But he ended up putting the city's demands in stronger terms. He said:
Arena Co doesn’t exist yet, so it’s not like they’re hiding what the financing structure is. It doesn’t exist yet. They don’t have, as far as I know, a private lender lined up and what that private lending agreement is. You’re right on in saying, ‘We want to know what ownership looks like. We want to understand what a third-party bank or other investor is going to do. And we want to make sure the city is getting paid first.’