Questions for L.A.’s downtown stadium deal

On Friday, the Los Angeles City Council will spend the day poring over a proposed memorandum of understanding with Anschutz Entertainment Group, the giant sports and entertainment company that built Staples Center and L.A. Live and now hopes to build a downtown football stadium. The council does not intend to vote on the agreement this week but rather to publicly air any remaining questions. It should take full advantage of this crucial opportunity to satisfy itself and the public that this deal is neither a developer giveaway nor a sop to beleaguered football fans, but rather is one that makes economic and environmental sense for Los Angeles.

With this negotiation coming to a head, the city’s elected leaders need to focus on what matters — protecting taxpayers against undue risk and residents against excessive environmental impact while trying to chart a course to revive the city’s troubled Convention Center — and to be clear about what doesn’t. The council’s goal cannot be to refuse any risk whatsoever, nor can it be to hold out for a stadium that creates no traffic or need for parking. It must balance the potential gains for the city in terms of jobs and tax revenue against the predictable impact of building a 72,000-seat stadium in the heart of downtown.

Some close observers of City Hall, especially those too accustomed to disappointment, see Friday’s session as window-dressing. AEG and its chief executive, Tim Leiweke, are lavish contributors to political campaigns and powerful players in Los Angeles politics. Having helped promote and elect the city government, AEG now stands to reap the reward of its investment — a view widely shared among City Hall’s many critics. In a city where cynicism is often rewarded by results, there is no denying AEG’s influence, experience or expertise in negotiating deals. As a result, this deal cannot be made based on a simple trust in AEG. Indeed, one thing we can safely predict about Friday’s session is that council members will try to score points with constituents by beating up the company, and then, later, will vote in favor of the proposal.

But theatrically railing against the deal is just as self-interested as supporting it in return for political backing. The proposal needs to be evaluated on its merits: how much it can do for the city and whether those benefits outweigh the costs, risks and inconveniences that it will certainly entail. In evaluating whether this proposal balances those factors adequately, here are half a dozen areas that the council would do well to inquire about and consider deeply:

1. How much risk is there to taxpayers? When AEG first presented the idea of a downtown stadium, it proposed that the city issue $350 million in bonds for the project, the debt service of which would be paid by the taxes generated from the project itself — property taxes, along with the sales taxes generated by every Styrofoam finger or bobble-head doll sold inside the stadium; that mountain of pennies would gradually pay off the stadium rather than go to city services. As the deal has been negotiated, however, the overall amount of the bond has steadily fallen and the use of taxes has shifted to the city’s advantage. Now, the proposal before the council puts taxpayers on the hook for $195 million, with AEG carrying a separate bond of $80 million to build parking garages (AEG would then own those garages, on land it would lease from the city for $500,000 a year).

The city’s chief risk lies in the $195 million of lease revenue bonds, which the city’s general fund is responsible for repaying. But the original proposal — that all sales, business license and hotel bed taxes generated by the project would be funneled back into debt service — has changed shape during the negotiations. Now, officials say that the city would get to keep the money from those sources and that the debt service on the $195 million would be covered by a combination of annual rent payments of $6.5 million, along with parking and construction sales taxes. The city would keep sales and bed taxes. If the remaining revenue streams come up short, AEG has promised to pay the difference. The council should examine those estimates and create mechanisms to ensure that the AEG promise is unbreakable.

In that vein, it’s important to remember that this project stretches far into the future; downtown today is lively and growing, but just a decade ago it was not. Thirty years from now, L.A. Live might be shabby and the stadium might not be living up to its initial promise. AEG could even be bankrupt. This deal needs to anticipate those possibilities as well.

Finally, in order to minimize the city’s exposure, the memorandum contemplates a series of letters of credit, and construction and operational guarantees. The council should ask its negotiators to spell out the details of those guarantees in the public session to assure elected leaders and the public that the risks are shared by the city and AEG and that those risks are more than balanced by the project’s realistically foreseeable benefits.

2. What are those potential benefits? The chief appeal of this proposal for the city is not the return of the NFL; it’s reviving the Convention Center, whose old and badly designed space makes it difficult to lure certain conventions, especially very big ones. Under the proposal, the new stadium, which would be covered by a roof, would expand and modernize the contiguous square footage of the Convention Center, making it far more attractive to big conventions. If successful, the project could transform a Convention Center that today does not make enough money to cover the debt service on the bonds issued to build it into one that could, according to city estimates, generate a net gain to the city treasury of $210 million over the next 30 years.

Beyond that, of course, are the jobs that it would produce, in terms of both short-term construction employment and those jobs in the shops, hotels and other amenities that would surround and fill the stadium and expanded Convention Center. The city estimates that the project would produce 2,600 temporary jobs and 6,320 permanent ones.

But what if Los Angeles, even with a modern Convention Center, simply can’t compete with San Diego’s waterfront or Las Vegas’ gambling or San Francisco’s beauty? The council should ask how this set of estimates for the Convention Center is more solid than those it relied on when it built the existing facility, a decision that many of those involved with now regret.

3. What happens if the city approves the stadium and then AEG fails to reel in a football team? According to the memorandum, the project cannot move forward until an NFL team has signed a commitment to play in Los Angeles. The council should demand a binding, written agreement to that effect.

4. And what if a team comes to Los Angeles, only to quickly have second thoughts and relocate elsewhere? Council President Eric Garcetti is eager for a written agreement that would bind a team to Los Angeles for decades; such a long-term commitment may be impractical, but it’s worth inquiring about.

5. What are the traffic and parking implications of the proposal? Construction of the stadium would eliminate about 1,600 parking spaces beneath the Convention Center’s West Hall, which would be demolished to make room for the stadium. To replace those, AEG would build two new parking structures, paying for that with the $80-million bond it would be responsible for repaying. Even with those and other parking spaces in the south end of downtown, the stadium would not offer anywhere near the parking that is typical of other football venues, where tailgating has long been part of the pregame experience. This raises two questions: What are the plans for boosting public transportation access to the stadium? And what makes AEG confident that the NFL will be comfortable with this new model for football fans?

6. What happens if AEG’s environmental impact report is challenged in court, and the entire project is held up as a result? This prospect has worried AEG officials since the moment the stadium idea was unveiled, and their main response has been one that the council should reject: The company wants a special protection from any lawsuit that it deems frivolous or that is filed by a competitor.

AEG is right to question whether California’s environmental law, known as CEQA, is too vulnerable to such lawsuits, but the answer to that is CEQA reform, not one environmental law for most of California and another for AEG. The council should explore ways to rationalize the law, but it should not help AEG write a statute for itself.

The prospect of bringing football back to Los Angeles has energized some fans and excited some residents, just as the closeness between AEG and the city government has worried others. Those competing pressures should remind the council of the need for balance in this debate. The council should not tend exclusively to the interests of football fans; nor should it either give too much to a political benefactor or play to the populist benches by thrashing that benefactor for effect. This is the time for the council to do what often comes hardest to it: inquire deeply, judge fairly and then, once its questions are aired and answered, act decisively.