After hearing Kent spends about $4.8 million per year to support the financially struggling ShoWare Center, City Councilman Jim Berrios pulled no punches with a pointed question to city staff.
“For the next 30 years we’re tied to a debt, a payment to the city regarding ShoWare that’s going to be pretty significant especially when we start experiencing the big hits on the interest rate,” Berrios said at a heated council workshop on Oct. 7. “So $4.8 million per year is where we are at now. There’s been talk about the benefits of ShoWare to the city, can somebody say it outweighs the deficit? Can somebody honestly say that?”
Ben Wolters, city economic and community developer director, quickly replied.
“Sure I can,” Wolters said about the economic impact. “It’s $750 million over a 30-year period.”
“No, I’m talking about now,” Berrios said. “I don’t want a forecast. You’re just forecasting what it could be. Based on the last five years can you honestly say ShoWare has been a financial improvement to our city?”
Wolters said he could say that based on an economic impact study in 2012 that showed the 6,025-seat arena brought in an estimated $25 million to the local economy in 2011, according to an economic impact analysis by Community Attributes, Inc. of Seattle. The consultant company concluded in its report that the arena “is a regional magnet, attracting more than one million visitors to Kent for sports events, entertainment, conferences, civic events and more.”
Wolters then explained about how much revenue that brings in directly to the city budget.
“It’s roughly about $500,000 to the city in terms of tax revenue from the sales tax and the admissions tax,” he said.
The city spends about $4.8 million per year to support the city-owned arena by paying off construction bonded debt ($3.1 million), repaying an internal loan ($1.2 million) and covering operating losses ($500,000), City Finance Director Aaron BeMiller told the council.
The arena is projected to lose $700,000 in 2014, BeMiller said. That will send the ShoWare Center operating losses to nearly $3.2 million since its opening in 2009, according to SMG (arena operator) income statements.
Mayor Suzette Cooke jumped into the discussion to respond to Berrios and talk about the positive economic impact of the arena.
“You can look at the number of businesses still open today because of ShoWare,” Cooke said. “We know specifically of businesses that kept their doors open because of people we brought into the city. Where would Kent be without ShoWare? There would be some missing businesses.”
Cooke said the arena also has value because of graduations and other community events held at the ShoWare. She added not all value measurements are strictly in dollars.
“One could look at cost comparisons to the Kent Senior Center,” Cooke said. “The Senior Center costs us a good $1 million a year for operations but I don’t know of anyone who would look to eliminating the Senior Center. That’s just operations because the debt has been paid off but we were in debt for years.”
The council continues to take a close look at the $84 million ShoWare Center as part of its discussions about the 2015-16 city budget. Cooke proposed in her budget to the council that the city keep paying $500,000 per year out of the general fund to help cover the arena’s operating losses.
SMG, which operates the arena, hasn’t been able to book as many as concerts as city officials had hoped to bring in more revenue. The Seattle Thunderbirds junior hockey team has a 30-year contract as the anchor tenant of the facility. Disney on Ice, the Harlem Globetrotters and the Ringling Bros. circus have become annual events at the arena that do bring in a good chunk of money.
But arena officials haven’t been able to halt the revenue losses.
“Unless the ShoWare starts adding some massive revenue we’re pretty much down this track here for a good little while,” Councilman Bill Boyce said to BeMiller. “I see no other way out of this, correct?”
“I think that’s a very reasonable statement,” BeMiller said.
The city formed a Public Facilities District to issue $63.3 million in construction bonds to help build the arena. That annual debt service payment is about $3.8 million. The city receives a sales tax refund from the state that brings in about $700,000 per year to go towards debt service. The other $3.1 million in payment comes out of the city’s capital improvement fund.
City officials planned when building the arena that event revenue would help pay the debt, but so far that hasn’t happened with the major financial losses.
“Going into this we were projecting that we would have a net profit and that profit would go towards debt service,” Wolters said.
City officials also are spending $300,000 a year to pay debt out of a fund that was supposed to be used to build reserves to replace or make improvements to the ShoWare Center.
“The other element that hasn’t worked out is the $300,000 really goes to replace the shortfall in sales tax,” Wolters said. “We were estimating closer to about $1 million (in sales tax revenue). What really skewed that is the streamline sales tax. These estimates were generated in 2006 and 2007 and assumed the tax structure we had at the time.”
The city also borrowed $9.7 million from the city water fund (utility tax) to cover construction cost changes that boosted the cost to about $73 million. City officials are using $1.2 million each year from the capital improvement fund to repay that loan. The final $84 million arena construction cost included a $3 million state grant and payments from the general fund and capital improvement fund.
“We’re obligated to pay back those bonds, we don’t have a choice,” Berrios said. “We’re kind of stuck with this. … My point is we’ve got to do something to improve our position. Turn every rock, look at every possibility. The suites aren’t all getting sold.”
The T-Birds oversee arena suite sales at hockey games while operator SMG oversees suite sales at all other events, a recent change to the original 30-year contract with the hockey team.
“This gives us a good foundation to go back and look at the contracts and as we start working through the budget we will have additional conversations about the ShoWare,” said Council President Dana Ralph, with plans to put the arena on another workshop agenda. “The goal of the presentation was to bring us up to speed on exactly what the building is costing and where that money is coming from.”
Boyce then summarized the challenge to city officials.
“It’s safe to say that nothing is going to change unless we do something about the revenue coming into the ShoWare,” he said.
SHOWARE FINANCIAL NUMBERS
City’s annual support to ShoWare
• Bonded debt: $3.1 million
• Interfund loan: $1.2 million
• Operating losses: $500,000
Total: $4.8 million
ShoWare Center revenue losses
2014: *$700,000
2013: $370,874
2012: $707,541
2011: $487,855
2010: $427,119
2009: $480,851
Total: $3.2 million
*Projected for 2014
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