A truly bizarre set of circumstances is playing out in California, as the City of Anaheim vies to become the new home for the Sacramento Kings NBA franchise. Apparently, the owners of the Kings are not happy with the level of subsidy Saramento has invested in the franchise, so they are threatening to leave. Southern California entertainment mecca Anaheim is apparently interested in luring the Kings to their playland with $75 million in bonds issued by the city. (Reportedly, the bonds will be financed by a local private billionaire who already manages the Anaheim arena. I'm not sure of the details of the project, however.)
First, kudos to the City of Sacramento for finally deciding "enough is enough." Sports franchises are terrible economic development tools. The subsidies cities and taxpayers have poured into these for-profit enterprises, aided and abetted by legally protected professional sports oligopolies, is little short of scandalous. See my previous blog posts here and here.
Still, the tactics employed by Sacramento are truly bizarre. Sacramento's city manager sent a letter to Anaheim's city manager "respectfully" requesting that they break off negotiations with the Kings before the bond vote. The letter can be found here. Sacramento's reasoning appears to be that the Kings franchise still owes Sacramento money (upwards of $70 million). Sarcramento is afraid that if the Kings move to Anaheim, they won't pay off their debt to the city. In other words, Anaheim shouldn't negotiate with the Kings because Sacramento's deal didn't pay off, or is going under.
This is odd because Sacramento appears to be working under the operating assumption that the Kings won't pay off their debt simply because they are moving their operations to another city. I'm not familiar with the original debt agreement between the Kings and the city, but I've not heard of a case where a business can simply write off their debt by moving their business to another location. If they can, perhaps Sacramento (and their taxpayers) deserve what they get because they signed a lousy deal. This is sort of like Verizon telling AT&T to break off negotiations with T-Mobile because T-Mobile still has debt.
But, the real ringer is probably in the explicit threat by the City of Sacramento to challenge Anaheim's environmental review for the relocation of the sports franchise. California's environmental review procedures are notorious for their ability to inflict interminable and terminal delay on projects in large part because anyone has standing to object to the review. Sacramento is playing the environment card to stop the deal.
In addition to the run of the mill objection that the review simply isn't good enough, Sacramento is claming that one of the reaons Anaheim's environmental impact assessment is inadquate is because it fails to account for urban blight in Sacramento that might result from the relocation of the Kings!
This would be a stunningly dark precedent if this reasoning carried the day. In essence, any business could be blocked from moving its operations since, almost by definitition, the relocation would create blight through empty buildings, lower employment, or lower tax revenues. It would become incumbent upon relocating businesses to "make whole" the neighborhoods and cities they leave. Businesses would effectively become locked into their locations.
Leave it to California to find even newer and more innovative ways to throttle their already struggling cities and economy.