PHOENIX - Sacramento is set to sell $282 million of bonds to finance a basketball arena after prevailing in a lawsuit challenging the validity of the debt.
A Superior Court judge in Sacramento ruled Friday that the collection of individuals who filed the suit more than a year ago failed to make their case. They alleged that that the project is a waste of public funds for which the bond sale would violate environmental laws and the California Constitution.
The Sacramento Public Financing Authority is ready to sell the federally taxable securities next month in support of a new home for the National Basketball Association's Sacramento Kings at the Sacramento Entertainment and Sports Center, with Goldman Sachs & Co. as underwriter.
The city acquired the final piece of land it needed for the complex in February and the project has actually been under construction, but the financing has been held up by a legal battle.
The suit also claimed corruption in the Sacramento government. Mayor Kevin Johnson, a former NBA star, testified that he deleted text messages related to the deal despite requirements that electronic records related to it be preserved, but said he did so with no ill intent.
The city has contended that the Kings would eventually leave Sacramento without a successor to its current Sleep Train Arena, opened in 1988.
The new arena is scheduled to open in October 2016, and the Kings have agreed to pay roughly half of its more than $500 million cost.
A Fitch Ratings report warned that an appeal could still hang over the process going forward.
"If the plaintiffs then file an appeal with the state court of appeals and the state court of appeals were to rule in favor of the city, the city would proceed with the public remarketing of the bonds," Fitch wrote. "In the event the state court of appeals decides against the city, the city would likely appeal to the state supreme court. Subsequently, if the state Supreme Court rules in the plaintiffs' favor, the series 2015 bonds and related indenture and lease documents would be invalid."
"Under that scenario, purchasers of the series 2015 bonds would not be entitled to repayment and could lose their entire investment," Fitch concluded.
Stadium bonds have drawn fire from critics who say the major sports facilities they fund tend to be overwhelmingly for private use that becomes essentially government-subsidized. Governments that issue such bonds, however, including Sacramento, often contend that stadiums drive economic growth and revitalize downtown areas, providing a tangible public good.
