Once again, the Oakland A’s Howard Terminal Ballpark Project is the focus of The East Bay Times. And again, The East Bay Times (once the Oakland Tribune) in the article “A’s Howard Terminal proposal: Who pays for what, exactly?” did not correctly explain the financial system that governs the public-private partnership, tax increment financing, or “TIF” – indeed, on this occasion, the reporter, Annie Sciacca, did not even try to mention it in her post. But, as you’re about to learn, again, you can’t understand the project without understanding TIF.
First, this disclaimer: I am not attacking Annie Sciacca personally. I do not know her, never met her, nor have I ever heard of her until seeing the title of the post she wrote via Twitter. This is not about her; it’s about the importance of getting the subject matter right so that Oakland A’s fans and the Oakland population, then the County of Alameda, and the State of California, and finally sports fans the the American public understand what’s going on here.
Second, tax increment financing revenue calculations and forecasting is second nature to me, and many in Oakland know it. For reasons boiling down to racism, they’d rather take the road of trying to ignore my words. That’s one reason I started my own media company, Zennie62Media: so I would not be stopped from presenting the truth, not that Ms. Sciacca is presenting a post with deliberately false information. So, with that, let’s take what she wrote, and break it down, and correct it. (And here’s the link to my Google spreadsheet simply called “HT Stadium”.)
She writes:
The Oakland A’s want to build a splashy 35,000-seat waterfront ballpark in the next few years and ditch the aging Oakland Coliseum football/baseball stadium that’s been their home since relocating from Kansas City in 1968. They say they can do it at no cost to the taxpayers. But can they really?
Based on a review of the team’s financial proposal and preliminary work from the city’s financial consultants, the answer is: Not exactly.
And she writes:
The A’s proposal is a complicated scheme that commits the team to spending about $1 billion for the ballpark, and envisions another $11 billion in project costs. That includes private investment — much of it from the team — to build housing, hotel rooms, commercial and retail space, but also nearly $1 billion in city tax money to prepare the waterfront site and provide access to an impressive but difficult location at Howard Terminal.
My First Correction Of The East Bay Times:
The ballpark will wind up with a final value of around $2 billion. That comes from comparing my estimates with numbers in conversations with people in a place to know about the A’s project more than any one else, and also MLB stadium cost history (it will be the most expensive, ever if built in Oakland). As presented above, in the link, I have my own, detailed, Howard Terminal Project Spread Sheet, which I developed first to prepare for a conversation I had with Oakland Athletics President Dave Kaval April 4th, 2017, then adjusted as the years, and the project, progressed.
The spreadsheet, in turn, is based on the Oakland Baseball Simworld system dynamics-based simulation game built using Forio Macro Language I created, and was the centerpiece product of my first startup Sports Business Simulations (which I co-founded with University of San Francisco Professor Dan Rascher). From 2003 to 2010, The Oakland Baseball Simworld (which the Oakland Tribune wrote about in 2001 in an article by Jon Becker), was used in 40 colleges and high schools. The website is here: http://www.sportsbusinesssims.com/home.html
Using the spreadsheet, and following the text of SB 293 Skinner, the A’s project financial legislation signed into law by Governor Gavin Newsom, October 11th, 2019, I held the A’s stadium as privately owned and financed (see SB 293 Skinner ). In other words, the $2 billion cost to build the stadium is borne by the Oakland Athletics, and, thus, provides the engine that starts the tax increment financing engine. Or to make it simple, it assumes the Oakland A’s pay their property taxes, annually, and to the new, special, agency.
Here, I must explain that when evaluating public-private development projects, always work to discover and then understand any special legislation made for it. SB293 Skinner is just that; many people do not bother to read it – if they know it exists. You have know it to in order to make the right forecasting models for the Howard Terminal Project. I have done such work since 1987, and specifically for redevelopment projects in Oakland, San Francisco, and Emeryville.
My Second Correction of The East Bay Times:
Note that Ms. Sciacca only parenthetically mentions SB 293 Skinner, and does not mention “tax increment financing”, or how it works, or the role the status of having a privately-financed and owned stadium holds in understanding the Howard Terminal Project with respect to TIF. At this point, her post completely derailed off its intellectual tracks. She writes:
“…envisions another $11 billion in project costs. That includes private investment — much of it from the team — to build housing, hotel rooms, commercial and retail space, but also nearly $1 billion in city tax money to prepare the waterfront site and provide access to an impressive but difficult location at Howard Terminal.”
Well, first, the “$11 billion in project costs” was really $12 billion, and second, it was wrong for Dave Kaval and the A’s to put in a figure that’s really a “final buildout” of all of the parcels expected to be created to make up the District. What I mean by “final buildout” is a scenario that sees a future where the highest and best use allowed by zoning laws for those parcels is achieved by real estate developers.
The Anatomy Of The $12 Billion In Howard Terminal Land Construction Costs
If you’re looking for an example, I have many. I will pick one that should be known to Oaklanders. Oakland City Center, where the last giant parcel of land in the 12-block office park within Downtown Oakland was taken up by the Blue Cross Headquarters Building. As an intern to the Oakland Redevelopment Agency right out of city planning grad school at Berkeley, I saw the model of what is now Oakland City Center in 1988. That’s the full build out, but it took 34 years to reach that mark.
Moreover, the actual buildout is still not as complete as the model I saw in 1988 and many times later, after that.
Another example involves my work on then-Oakland Mayor Jerry Brown’s 10K Project to bring 10,000 units of market rate housing to Downtown Oakland. I created map of available Downtown Oakland parcels and invited the Oakland Real Estate Community to my office on a Saturday in February of 1999 to see what was available, and had “buildings” giving an idea of what Downtown Oakland would look like if those parcels reached “final buildout.”
In other words, “final buildout” is a wish list of projects that, in reality, may never been seen. Thus, you don’t count the “final buildout” of $12 billion. And that underscores another error Dave Kaval made that I have tirelessly tried to correct him on. (Note: The Oakland A’s, nor anyone else involved, are Zennie62Media, Inc. clients. As I have stated before, working on this is a passion project, and because I know this aspect of it better than anyone else. So, I am working to help the public understand what’s going on via my seat at CEO of Zennie62Media and builder and operator of the Oakland News Now Blog.)
I told Dave that if he was going to throw out that $12 billion number, since all of the construction would be in the Howard Terminal District, and that district is supposed to be a tax increment financing zone where the property tax is collected by a separate agency as called for by SB 293 Skinner, and to be created by The City of Oakland and not the Oakland A’s, then he had to count that $12 billion in the TIF Calculation. I did.
Assuming a 40-year-bond-debt-service period of property tax collection, and a modest 4 percent annual growth in total assessed value for the Howard Terminal District, by the 40th year, the total tax increment revenue would be over $9 billion – and that’s with a math assumption that you just “dump” the $12 billion in at once, from the start of the TIF collection period of time, as base-year assessed value. In reality, that $12 billion will be the result of different developers, in phases, over time.
The Mistakes Of My Friend Dave Kaval
The A’s and Dave Kaval have, and I can’t over-state this, made a giant blunder in not thinking through the TIF aspect of the project. Moreover, The East Bay Times reporter echoed the error by using the A’s Term sheet as a guide, even though there’s more than one post at Oakland News Now and Zennie62 YouTube pointing to the problems with the term sheet.
The Oakland Athletics threw out the $12 billion construction number for public consumption, but obviously failed to realize that they were talking about the same Howard Terminal Ballpark District where the new agency (let’s call it the New Redevelopment Agency) collects the property tax that will be used to pay of the bond that will fund the infrastructure projects slated for the area. When I told Dave about this, and asked why he did it, I got silence on the other end of the line (outside of “I’ll look at it”). I told him he should go to the press and issue a correction – he did not do it. So, the messaging problem remains to this day – and its a big one.
On top of that, and proving that Ms. Sciacca did not mention or read in detail SB 293 Skinner, the law – Section 53395.82, SECTION 2, b – reads
“(b)In addition to the findings and declarations in Section 53395, the Legislature further finds and declares that consolidating in a single agency the ability to capture property tax increment revenues to finance qualified public facilities in the City of Oakland will provide communitywide benefits.”
Note the law does not call for the City of Oakland to collect the tax, but a single agency. That agency can be set up in such a way that the City of Oakland’s bonding capacity is not used, and if the City’s smart, it will structure it that way. In lay terms, that means the City of Oakland can be protected from any concerns about bond default or having to pay millions of dollars of general fund money to avoid such a scenario. But that’s another post for another time. Just remember we’re talking about a single agency charged with “ the ability to capture property tax increment revenues” and that means it has control of revenue generation to fund the bond issue. Read SB 293 Skinner, in detail, please.
So, back to Ms. Annie Sciacca’s next error, where she writes that:
“
The A’s are arguing, in essence, that their project will spark economic development that creates those taxes, so the city is giving up nothing. But the team’s proposal assumes that Howard Terminal and the surrounding area would produce little in the way of tax growth without the A’s — and that it will produce enough to pay the full cost of needed improvements with them and their ballpark in place.”
Then she writes an even larger mistake of a take:
“The A’s estimate the offsite infrastructure work would cost $360 million and expect it to be paid from the creation of a 1½-mile-long Jack London Infrastructure Financing District that stretches from Mandela Parkway to Oak Street. The term sheet says the estimated tax revenue from that tax district would generate $1.4 billion, more than enough to cover the infrastructure work.
But given the size of this financing district and how far it stretches from the ballpark, it’s harder to argue that the A’s are creating all of the tax growth there. How much should they really get credit for? The city has not released its own analysis of this part of the proposal, and the A’s term sheet doesn’t break down how that figure was calculated or when the money would start being collected. “
The $1.4 billion in revenue comes directly from the privately-financed Oakland A’s Howard Terminal Ballpark, alone. It’s a revenue figure I have presented many times over the past year and a half. Why? Consider what I told you about what “final buildout” is. Well, I believed that since $12 billion was a wish list, I would start with the one building I knew was going to be built: the privately-financed and A’s owned ballpark.
Take that $2 billion in ballpark value and increase it by 4 percent per year (remember, the County of Alameda can increase project area assessed value by two percent per year according to Proposition 13) in a TIF spreadsheet and over 40 years, and the result comes to roughly $1.4 billion. Divide that by 2 (the debt coverage ratio) and that gives $700 million in project revenue generated from the stadium all by itself that can be used for a bond issue.
If The East Bay Times reporter knew development economics, tax increment financing, and TIF math, she would have picked up the Oakland A’s error herself. But, she didn’t know, and did not tell the public it was something she was not familiar with, nor did she refer to my work. (And may have been told not to by her editors.)
But I digress. That’s tax increment financing, folks, and it’s sad the City of Oakland (and much of the media save for Zennie62Media) has avoided educating the public about something we used to make much of Downtown Oakland from 1968 to 2011.
Indeed, most of the flatlands area of Oakland was redevelopment TIF revenue collection area, from West Oakland to East Oakland, and the Downtown in between. Redevelopment built Oakland, I became an expert in it thanks to the City of Oakland and Ezra Rapport (the Oakland Assistant City Manager who was the architect of The Raiders Deal and my indirect boss from 1987 to 1988), and now Oakland’s suffered without it. As now Oakland-Alameda County Coliseum Executive Director Henry Gardner will tell you, Oakland even used redevelopment revenue to remove crack houses in East Oakland.
And Yet Another Major Mistake By The East Bay Times
And on the note of East Oakland, we come to yet another major mistake by The East Bay Times reporter. She failed to note that SB 293 Skinner calls for the redevelopment revenue produced by the Howard Terminal zone to be used, in part, for any project the agency deems of community-wide interest. It also mentions that it can be used for the military base redevelopment projects that Oakland has dragged its feet on finishing for several decades.
Section 53395.82, SECTION 1 (e): “It is therefore the intent of the Legislature to provide the City of Oakland, hereafter referred to as the city, with additional latitude, within the framework of the laws governing IFDs, to create and operate an IFD in a manner that optimizes its financing options to facilitate the construction of much needed public facilities and affordable housing meeting the stated goals of communitywide significance. The city may wish to establish an IFD at Howard Terminal or another location. This will spur private investment and provide additional dollars to support development and revitalization of urbanized areas that include housing for all income levels with equal access to public transit, goods, services, and economic opportunities. In order to adapt the provisions of Chapter 2.8 (commencing with Section 53395) of Part 1 of Division 2 of Title 5 of the Government Code, relating to infrastructure financing districts, to the unique circumstances within the city, a special act is necessary.”
This section allows Howard Terminal and other “IFDs” to produce revenue that may be used in other parts of Oakland:
SEC. 2. Section 53395.82(d) (1) “A district may finance the design, purchase, construction, expansion, improvement, seismic retrofit, or rehabilitation of any real or other tangible property with an estimated useful life of 15 years or longer, as described in this chapter. The facilities need not be physically located within the boundaries of the district. However, any facilities financed outside a district shall have a tangible connection to the work of the district, as detailed in the infrastructure financing plan adopted in accordance with subdivision (e). Subdivision (b) of Section 53395.3 shall not apply to the district, but the district shall only finance public facilities of communitywide significance that provide significant benefits to the district or the surrounding community.��
And Here’s Another Mistake By The East Bay Times
The East Times Reporter also made this error:
The term sheet states the city will reap $450 million worth of community benefits from the tax districts. Asked for details, Kaval cited the union labor hired to develop the property and environmental cleanup of an area that’s been contaminated over the years, in addition to the infrastructure and housing projects.
As I told him before and again, and say to Dave Kaval now, let SB 293 Skinner do the talking for you. It’s clear that the legislation itself creates the community benefits, which will be even greater than $450 million Dave and the Oakland A’s mention in their really bad “term sheet.” What’s worse is the City of Oakland staff let Dave hang himself out to dry with it. That’s not because the City of Oakland staff knows the project better than he does from a redevelopment financing law and math standpoint – it’s because they don’t have a finger-tip feel for it like I do.
That points to another problem in Oakland: the dramatic loss of institutional memory for how we did projects using tax increment financing. The brain drain has literally killed our ability to properly execute TIF projects, and explains why we don’t have an active one, even though SB 628 Beale is on the books and allows the City of Oakland to use TIF for infrastructure and low income housing. That’s something I have yelled and screamed about over the years, too.
See:
If they want to prove me wrong, set up a meeting. So far, in the meetings I have had with some A’s and Oakland public officials involved, I’m undefeated. That track record will remain, so they’d better buckle up. All of this is to the good of making sure everyone understands what’s been formed here. Which brings me to the Raiders.
The Oakland Raiders could have had the benefit of this legislation and reform the most powerful redevelopment organization in Oakland’s history, but it wanted to leave for Las Vegas. Mayor Schaaf was too piqued by the disrespect Raiders Owner Mark Davis showed her, and so lost a lot of excitement toward the days leading to the NFL Las Vegas Relocation Vote on March 27th, 2017.
Dave Kaval does not have that problem, but he has a large set of issues that point to a need for more time to flesh out the details of what’s been done. Major League Baseball Commissioner Bob Manfred stepped in and threatened relocating the Oakland A’s without, himself, understanding what was created. There’s a lot of the “blind leading the blind”, and that’s got to stop.
Stay tuned.