The Latest on I-91




To all our supporters,

We just wanted to reach back out to all of you regarding our latest thoughts on I-91 after taking the time to further review the City Central Staff’s report from last week and Chris Van Dyk’s comments.

As can be seen in the four page presentation you can download below, the most important fact to consider is that even if we were to use the City Central Staff’s unfounded assumption that the land and Arena are worthless at the end of the lease and that ZERO incremental taxes are created, the return to the City/County is still 7%!

While the MOU is no doubt complex, the math here is not. If we just divide the $14 million in GUARANTEED taxes and rent the City/County will receive per year by their $200 million investment, we get an annual return of 7.0%.

With this in mind, the simple “common sense” question we would just ask all Seattleites is “How does a 7% return not exceed the 30 year Treasury rate of 2.7%, which is what is required by I-91?”

In their report last week, however, the City Central Staff also suggested that the 30 year Treasury may not be the right benchmark and suggested the use of an alternate “fair value” analysis which argues the City/County should receive a 1.0% “risk premium” to its borrowing cost. Assuming the City/County’s 30 year bond yield is 5.5% (conservative rate assumed in the City’s Model, current rate is closer to 4.0%), this would imply a required return of 6.5% — which again is still below the 7.0% guaranteed return stream of taxes and rent.

While there is nothing in I-91 that suggests this precise methodology, we would just like to highlight the fact that the Central Staff’s conclusion that the Arena Proposal did not meet the “fair value” required return was the result of a very basic finance mistake they made in their analysis – adding the 1% risk premium to the debt service (which like a 30 year mortgage includes principal repayment) instead of to the City’s cost of capital (which is the yield on its 30 year debt).

Thus even under this “fair value” analysis, had the City Central Staff simply done their calculations correctly, they would have arrived at the conclusion that the Arena Proposal meets this standard.

We would also like to take the opportunity to address Chris Van Dyk’s suggestion that the proposal does not meet I-91 as it stands. In response we would just say:

  • 1. I-91 does not distinguish between taxes and interest payments, and to suggest otherwise is just his unsubstantiated opinion. Both are secured “cash” received by the City/County’s General Fund. And in the case of the taxes, these are new tax receipts that would not exist if our proposal does not move forward.

  • 2. We would also suggest Van Dyk check his math. Even if we were to exclude all taxes, as Van Dyk suggests, and just rely on the rent payments assumed in the City’s model and the raw land value of the Arena at the end of the lease, the annual return to the City/County (3.2%) would still be 20% higher than the current yield on 30 year Treasuries (2.7%).

The bottom line here is that any way you cut it, our proposal meets I-91 – both the definition and intent.

— Chris Hansen

Download Powerpoint Presentation