Sports Arena No Sure Fix for Downtown L.A.

New strategies for revitalizing downtown areas of the U.S. have been numerous in recent times. Included have been urban renewal, redevelopment, entertainment and cultural complexes, convention centers and now sports facilities.

Shortly, the Los Angeles City Council, like previous councils in St. Louis; Phoenix; Chicago; Orlando, Fla.; and Charlotte, N.C., must finally decide whether it will support the construction of a sports arena adjacent to the Los Angeles Convention Center.

Civic leaders, corporate executives and various politicians representing a range of political positions have apparently agreed that construction of this particular facility is in the best interests of the citizens of Los Angeles.

The reason, we are told, is that the facility is necessary to reinvigorate a dying downtown. Just last week, the L.A. City Council voted to give preliminary approval to the downtown arena.

Benefits to the local economy are almost always presented as a key justification for making the decision to build sports facilities. In the case of Los Angeles, the number of permanent jobs to be created by the arena is estimated at 710, according to the E.Y. Kenneth Leventhal Real Estate Group. An additional 514 jobs are projected (even though it is acknowledged that many of these jobs would be moved from the Forum in Inglewood and that most of the jobs would be part-time and pay minimum wage).

The second major benefit the city should derive from this new investment is greater revenues. In this case, Los Angeles is expected to receive $1.5 million annually in additional tax revenues. Other benefits projected include the opportunity to revitalize the South Park neighborhood by stimulating investment in the area and propping up restaurant and retail establishments. All arguments point to the need for the proposed arena to help revive downtown Los Angeles.

The current estimated cost to build the arena is $200 million. The public is being asked to pay more than $60 million of this through bond sales. This money would be used to purchase and clear the land where the stadium is to be built. In the event the final cost exceeds the original estimate, the city could be liable for up to an additional $10 million. Construction costs are to be the responsibility of the stadium’s owners.

To make the financing scheme attractive to city officials, it may be paid for through a 1% increase in the hotel tax, thus most Los Angeles residents would not be taxed. Furthermore, unlike other stadium “deals” around the country, Los Angeles would not own or operate this facility, hence the city’s financial obligation would be greatly limited.

Unfortunately, the verdict is still out regarding how effective the other previous downtown revitalization initiatives have been. The Los Angeles Community Redevelopment Agency, for example, has had the most visible impact on both reshaping downtown and stimulating investment.

This effort has taken more than 30 years and billions of dollars and yet has not proved to be a sufficient catalyst to revitalizing downtown. Construction of the Convention Center and completion of its recent addition were also believed to be necessary in order to make Los Angeles more competitive and to contribute significantly to the city’s financial viability as well as generating much-desired pedestrian traffic.

But the Convention Center is operating at a deficit and does not generate nearly the anticipated foot traffic. Now a media blitz is being prepared to support the construction of a new arena for the Kings and Lakers because, maybe this time, one 20,000-seat arena will be able to do what millions of square feet of office space and a state-of-the-art convention center have been unable to do.

So what should the city do?

First, don’t mislead the public into believing that this is the greatest deal to hit Los Angeles in the last 50 years, as one advisor to the mayor did on public radio recently. Although it may be nice to have a sports complex downtown, it is unlikely that this facility in and of itself would contribute significantly to the revitalization of Los Angeles. That’s in part because most of the patrons would drive in and out of downtown as quickly as possible, thus not contributing appreciably to the local economy.

In addition, the developers of the complex would probably follow the lead of other arena owners and attempt to capture as much discretionary revenue as possible within their complex--sort of a one-stop shop for patrons. Local merchants would be the losers.

Second, take a hard look at the lessons learned from other cities; don’t simply rely on consultants’ projections, which usually support the justification to build. Instead look at what has happened in the cities that built such facilities.

In the case of Toronto, the city had to pay dearly when cost overruns on the Skydome boosted the Ontario taxpayers’ portion of the total bill from $120 million to $320 million.

Third, keep in mind that since it takes tax dollars to make the deal pencil out, in the long run the taxpayers of Los Angeles should be the winners. Before making its final decision, the City Council should be able to demonstrate satisfactorily to the residents of Los Angeles that the net benefits of this particular deal are worth the millions of dollars the public is being asked to invest.

Simply enhancing the prestige and financial success of franchise owners and their business partners with the promise that at some time in the future the general public will also benefit is not acceptable.