EDITOR’S NOTE: With Bill Rosendahl joining the chorus of supporters, Jan Perry’s Ad Hoc Committee unanimously voted Wednesday evening to recommend approval of the proposed Memorandum of Understanding with AEG for construction of an NFL stadium and the tearing down and rebuilding of the old West Wing of the LA Convention Center. USC Adjunct Business Prof. Quentin Fleming and business Cary Brazeman, founder of L.A. Neighbors United which has bought full-page newspaper advertisements about the deal, raised new questions about why the city isn’t getting a fair share of the profits. Here’s video of Fleming’s remarks to the Committee and Brazeman’s written submission to the Committee and video of his remarks.
We are pleased to provide these observations, comments and questions about the proposed Memorandum of Understanding (MOU) between the City of Los Angeles and AEG for the development of a new professional football stadium and event center, and a reconfiguration of the Los Angeles Convention Center.
First, many thanks and much appreciation to the City Team of negotiators. Due to their efforts, the City is in a significantly better place today than it was several months ago. Taxpayer risk has been significantly mitigated, though some have jokingly suggested that the only way to fully mitigate the risk is for the City to accept Mr. Anschutz’s children as collateral to secure AEG’s obligations. We certainly wouldn’t object to that!
Attention now should be paid to increasing the deal’s hard return to the City, so the project helps fund essential City services beyond project-specific debt service. If the City leaves money on the table, it’s the same as giving taxpayer money away.
• This is not a zero-sum game.Our neighborhood-centric, livable city agenda is reconcilable, if not compatible, with the Council’s jobs and downtown economic development agenda. We know that without revenues there can be no neighborhood services. We all win if the terms of the deal are reasonable, but we’re not there yet.
• The City can support a stadium and repaired sidewalks. As our advertisements have pointed out, we find it incomprehensible that the City has marshaled the resources to work out the stadium deal, but cannot produce a workable solution to mend our City of Broken Sidewalks (as an example of infrastructure in need of repair). The proposed point-of-sale plan to address sidewalk repairs is unacceptable; among other things, it would be highly inefficient. There are other ways to skin the cat, including ways to finance even 50% of the sidewalk repair cost. As I have personally written, the City can support a stadium and sidewalks, but a stadium at the expense of sidewalks? That’s no recipe for a livable city.
• If the City leaves money on the table, it’s the same as giving taxpayer money away.Our specific questions and comments are intended to be constructive, and offered in the interest of ensuring a reasonable deal for both parties.
Questions and Comments About the MOU
• Notion of “no taxpayer money.” It is disingenuous to say that no taxpayer money is proposed to be used for the project. More appropriate is to say that taxpayer money is being used, with AEG agreeing to a payment plan to pay the City back.
• Projected internal rate of return (lRR) is flawed, contradicting the notion that AEG cannot afford to contribute more resources to the deal.As Professor Quentin Fleming ofUSC points out, consultants have erred in their calculation of the deal’s internal rate of return, principally based on the timing of the construction spend and the anticipated discount rate. Professor
Fleming concludes that the real IRR would be significantly higher than the consultants’ projected 6.7 percent. If two teams ultimately play at the stadium, the IRR soars to over 20 percent, he concludes. We may undertake our own evaluation of the financials independent of Professor Fleming’s analysis, and reserve the right to submit to the City expert testimony
as evidence. Among other things, we presume that AEG will be collecting development management fees for both the stadium and Pico Hall. It does not appear that these fees to AEG have been included in the consultants’ IRR calculations. If they have, please illuminate the calculations. If they have not, why not?
• Likelihood of net-new economic benefits to the City. Virtually all of the economic benefits that are projected to accrue to the City from the project (beyond tax revenues and payments to be dedicated to debt service) are attributed to projected “off-site” economic activity. This activity mayor may not ever occur. We want to believe, but believing and $2 will buy a cup
of coffee at Starbucks. That’s why it’s so important that the City negotiate a reasonable, direct return to taxpayers given the City assets involved in the deal.
• Advertising signage on public buildings.The MOU anticipates a significant number of advertising signs on public buildings, including the convention center’s South Hall, with most of the revenue directed to AEG. Why is the City assigning these signage rights to a third party, versus maintaining them for its own account? This is revenue that could fall right
to the LA Convention Center’s bottom line.
• Low-ball estimate of signage revenue to be generated.We believe the estimate of anticipated advertising signage revenue is low, with the corresponding annual fee directed to the City similarly low. We may undertake a third-party review of the value of these signage rights, including the anticipated revenue stream. We reserve the right to submit to the City expert
testimony on this matter as evidence.
• No rental rate escalation clause if more than one professional sports team is secured. If AEG is successful in bringing more than one sports team to the facility, which is a real possibility, the event center will generate significantly more revenue to AEG. If this occurs, rent paid to the City should increase. Why is there no escalation clause in the lease agreement?
• No compensation to the City for LA Live event-deck development rights. The current LA Live agreement between AEG and the City requires AEG not to develop a portion of the site (the airspace parcel currently occupied by the event deck at the Olympic West Parking Garage) that the City initially conceived as a potential location for convention center expansion. The MOU removes this requirement, thus allowing AEG to develop the site as it sees fit. Why does the MOU not require AEG to compensate the City for these development rights, which are valuable?
• Unknown impact of stadium development project on City’s inventory of convention center air rights. Currently, the City maintains an inventory of unused development rights (floor area) resulting from the convention center’s mass and scale, or lack thereof. These development rights have monetary value. Most recently, some of the rights were transferred to the Wilshire Grand hotel redevelopment project, enabling a larger project on that site, which also is downtown. The City has not demonstrated how its inventory of development rights would be affected by the stadium development and convention center reconfiguration.
Please provide a full accounting, including analysis of whether an economic loss to the City would result from the proposed project as it relates to convention center air rights. (We note that this is a separate issue from the stadium ground lease, and more directly relates to how else the development rights might be deployed.)
• Potential for tax-revenue sharing by other jurisdictions with the City of Los Angeles. According to consultant estimates, other jurisdictions (Los Angeles County, MTA, LAUSD combined) will reap more tax revenues from the project than will the City of Los Angeles, yet the City shoulders a disproportionate liability, including for repayment of the bonds on the existing convention center. Given that the stadium and new convention center hall would be regionally significant assets, why are other jurisdictions not making contributions to the deal? (If they are, it is unclear to us.)
We look forward to your responses to our questions.
We close on the same notes on which we began. Our neighborhood agenda is reconcilable with jobs and downtown economic development. We simply want the best deal for the City of Los Angeles … a deal that treats the stadium developer fairly but also respects the taxpayers who call Los Angeles home. Thank you for your consideration.
Cary Brazeman, Founder L.A. Neighbors United