By Martin J. Greenberg and Lori Shaw
Once a proposal for a new or renovated professional sports facility has appeared in the news, the response is always the same. There are celebratory cheers and premonitions about how beneficial the facility will be for the community, perhaps a community in desperate need of revitalization. But, after the confetti has fallen and the hoopla dies down, the aftermath is always the same; private citizens or groups begin challenging the proposal from all different angles, but always nearly the same angles.
After the Sacramento Kings (“Kings”) were purchased by Vivek Ranadive and Mark Mastrov, the proposal for a new downtown arena for the Kings started to form. The new arena, which broke ground in October 2014, moved from the old location on the outskirts of town to a more central location in downtown Sacramento (“Sacramento”).[1] The new arena is designed to be an Entertainment and Sports Complex (“ERC”), or a sports.comm, whereby other attractions will be located surrounding the arena to draw people to the complex. For example, restaurants, bars, hotels, and retail shops to name a few are all set to be constructed nearby the ERC as a way to get people into the facility on a year-round basis.[2] Although the ERC appears to be a way to put money back into the city, producing countless jobs and increasing city tax revenues, private citizens and groups have brought several different lawsuits trying to prevent the construction of the arena in downtown Sacramento.
One way to challenge a city’s proposed use of public funds to finance the construction of a new sports arena is to attempt to get an initiative onto the voting ballot of the city, whereby citizens would have the option to vote for or against the use of public funds to finance the new arena. That was exactly what STOP, or Sacramento Taxpayers Opposed to Pork, attempted to do.[3] Working together with Voters for a Fair Arena Deal, STOP’s initiative, City of Sacramento Voter approval for Public Funding of Professional Sports Arena Act, sought to get the initiative put onto the June 3, 2014 ballot.[4] This initiative challenged Sacramento’s contribution of $258 million dollars to the financing plan. If the initiative made it onto the ballot, it would have required voter approval of Sacramento’s use of public funds.[5] STOP asked citizens two questions, the first being if taxpayers wanted the project financing plan put on the ballot and second whether they would approve the financing plan.[6] 78.3% of the people surveyed supported putting the initiative on the ballot, while 47% said they would support the financing plan.[7] STOP received 35,247 signatures in support of its initiative, although only 22,498 were valid.[8] In order to be placed on the ballot, a petition needs only 22,165 signatures. However, there were significant and substantial procedural problems with the petition circulated by STOP.[9] 6,719 of the signatures appeared on petitions that contained different language, 105 signatures were signed before STOP had appropriately filed the notice of intent, and STOP failed to file the notice of intent according to the city code.[10] According to the Sacramento County judge who dismissed the lawsuit over the ballot initiative, “procedural errors in the lawsuit undermined the integrity of the electoral process,” and the conflicts with the requirements of the city code would ultimately circumvent that process.[11]
Another means to try and prevent the construction and financing of new arenas is based on lawsuits filed as being violative of either federal or state environmental laws. One lawsuit, filed by Adriana Saltonstall (“Saltonstall”), the former Director of the Department of Transportation,[12] challenged the construction of the arena on environmental grounds under the California Quality Act.[13] Saltonstall claimed that the arena construction would increase traffic and air pollution problems both during and after the completion of the construction project.[14] Saltonstall also alleged that with a central downtown location for the new arena, Sacramento was likely to face increased criminal and tort activities due to the volume of people in and around the arena who would be drinking, loitering, or otherwise disturbing the peace.[15] However, Saltonstall’s claims were dismissed by both the Superior Court and the 3rd Circuit Court.[16] Generally speaking, unless the team owners, in constructing new arenas, fail to comply with government environmental or construction regulations, the court will typically dismiss these claims as without merit.
The most common challenge against the financing and construction of a new arena may be the use of public funds for private purposes. A complaint challenging the use of public funds to help finance the Kings new arena was filed by three local Sacramento residents (“Plaintiffs”). The case was originally dismissed because the Plaintiffs relied upon the proposed “term sheet” of the financing plan rather than a binding final agreement.[17] In response, the Plaintiffs amended their complaint and a trial of the matter began on June, 22, 2015.[18]
The complaint set forth six causes of action against Sacramento, with many of the challenges directly aimed at John Shirey (“Shirey”), the City Manager and John Dangberg (“Danberg”), the Assistant City Manager. The first cause of action was based on intentional fraud. Specifically, the complaint alleged that Shirey and Dangberg provided false information to the City Council with the intent to defraud and induce the City Council into supporting the new arena construction financing plan.[19] Moreover, the complaint alleged that Shirey and Dangberg concealed material information and facts that they were bound to provide.[20] The first two claims in the complaint, intentional fraud and concealment, are not the average run-of-the-mill claims in arena financing challenges. However, both claims focus on the “secret subsidies” provided to the Kings by Sacramento, including the 2,700 Downtown Parking Plaza parking spaces, billboard leases, the amount, or lack thereof, of possessory interest tax, and the undervaluing of City-owned land provided in the financing plan.[21] These “secret subsidies” are also referred to as “sweeteners.”[22] The allegations that Sacramento had defrauded the people by failing to provide accurate estimates of the true value of their “donations” to the Kings is a serious allegation, calling into question the actions of the public officials themselves.[23] The complaint further alleged that the use of public funds to support a private organization constitutes a “secret subsidy” to the Kings organization, while the Kings will provide Sacramento with a luxury suite with tickets and parking during all events held at the arena.[24]
A more common allegation in the complaint is the allegation against the use of public funds, which the Plaintiffs alleged constitutes a “fraud on the public” by failing to take into account the accurate monetary value of the total contributions Sacramento made to the Kings organization.[25] Claims four and five alleges illegal expenditure of public funds and waste of public funds. Under claim four, the illegal expenditure of public funds, the Plaintiffs alleged that the California Constitution prohibits public funds or anything of value to be provided to any individual, corporation or other governmental agency or entity.[26] The Plaintiffs alleged that the term sheet sets out illegal expenditures of public funds to the Sacramento Investor Group as a purely private benefit.[27] Moreover, the Plaintiffs also alleged that the use of parking meter revenues set to be used by Sacramento to help finance the arena is illegal under the Sacramento City Code.[28] In claim five, waste of public funds, the complaint further stated that not only are public funds not to be given to private corporations or individuals, but that if public funds are given to private corporations or individuals, it has to result in a public benefit.[29] The complaint alleged that Sacramento has not sufficiently demonstrated that the use of public funds to finance the Kings new arena would provide significant economic development or growth to benefit the public.[30] The unfortunate reality of lawsuits trying to stop the funding and construction of new arenas ultimately has two main, and costly, effects: it stalls the construction of the facility and it increases the ultimate price that the public will pay for the facility.[31] When citizens challenge the amount of public funds being used to construct a new facility, the pending litigation and the delay in issuing bonds and other notes from the city to finance their portion of the arena are actually substantially increasing the overall total the city will ultimately have to contribute. The litigation pending by the Plaintiffs over the use of public funds to help finance the new arena could, in the end, cost Sacramento an additional $80 million dollars because the bonds the city plans to use to help finance the arena cannot be issued until the litigation is resolved.[32] The arguments heard by the trial judge could pose additional problems for Sacramento if the Plaintiffs win in addition to stalling the construction and issuance of bonds. If the Plaintiffs win their lawsuit against Sacramento and the Kings on their “fraud on the public” argument, the Kings organization could be liable for millions of dollars owed to the taxpayers of Sacramento, although this fate is highly unlikely given the precedents set in recent years.[33]
Sacramento has already been successful in three other lawsuits challenging Sacramento’s financing plan and the use of public funds for the new arena, which bodes well for predicting future challenges to arena financing plans that involve public funds, like the new proposed Milwaukee Bucks arena.[34] The final challenge, which was discussed above and went to trial on June 22, 2015, resulted in another favorable decision for Sacramento. After an eleven day trial heard by Judge Frawley, the Judge ruled in favor of Sacramento, finding that the Plaintiffs failed to adequately prove that Sacramento had struck a secret subsidy with the Kings, which was the crux of the Plaintiffs’ argument, and that the Plaintiffs’ allegations were primarily based on assumptions of facts and statements taken out of context.[35] In determining that the Plaintiffs’ failed to meet their burden of proof on their fraud allegations, Judge Frawley held that there was no evidence that Sacramento intentionally misrepresented any information to the public, but, in fact, provided Sacramento with all the information they could make available.[36] Judge Frawley also rejected the Plaintiffs’ argument that the new arena would not benefit Sacramento, noting that there are several examples of activities, organizations, and properties that are both privately and publicly funded jointly that benefit the public.[37] As for the Plaintiffs’ claim that a monetary value should have been assigned to the billboards and parking lots/garages given to the Kings by Sacramento, Judge Frawley held that, although the billboards and parking areas might be financially valuable to the Kings in the future, at the current time they are not valuable to Sacramento without extensive, and expensive, improvements.[38] More importantly, the billboards have yet to be constructed, so the value of the billboards could not have been determined at the time they were given to the Kings.[39] The Plaintiffs can file an objection to Judge Frawley’s ruling, which has to be filed within fifteen days after the decision.[40]
When Miller Park was constructed in 1995, the Wisconsin legislature in enacting the Stadium Act created the Southeast Wisconsin Professional Baseball Park District (the “District”) to oversee and monitor “the planning, financing, designing, constructing, commissioning, operating, and maintenance of the new baseball stadium.”[41] The District, which included representatives from Milwaukee, Ozaukee, Racine, Washington, and Waukesha counties, acted to help facilitate the successful development and financing of the new stadium and to combat challenges brought against the stadium financing plan.[42] The creation of the District, however, was challenged by the Libertarian Party of Wisconsin. The Libertarian Party challenged the creation of the District on the following grounds: (1) the Stadium Act is a special or private tax law in violation of Wis. Const. art. IV, §§ 31 and 32; (2) the Stadium Act permits the contracting of state debt without a public purpose in violation of Wis. Const. art. VIII, §§ 4 and 7(2); (3) the Stadium Act violates the internal improvements clause of Wis. Const. art. VIII, § 10; (4) the Stadium Act violates the municipal debt limitation of Wis. Const. art. XI, § 3(3); and (5) the Stadium Act pledges state credit in violation of Wis. Const. art. VIII, § 3.[43]
The Supreme Court of Wisconsin, however, upheld the creation of the District as constitutional and denied the Libertarian Party’s challenges.[44] The Court utilized a five-prong test in assessing whether the District was constitutional or not, with a presumption that the District was, in fact, constitutional, under the Libertarian Party’s first claim against the District.[45] The Court found that the District satisfied all five elements under the City of Brookfield Test.[46] The Court also noted under the second claim that Miller Park satisfied the definition of a public purpose because the Legislature reasonably determined that it would provide a public benefit.[47] Similarly, as to the third claim, the Court determined that the benefits of Miller Park, including increased job opportunities and tourism, would promote a valid public policy and purpose.[48] In assessing the fourth claim, the Court determined that the bonds did not equate to a violation of the municipal debt limitation clause because the bonds issued were not funded by increased property tax revenues and, more importantly, the bonds fell within the “special fund doctrine.”[49] As for the final claim, the Court found that because the state and District are not the technically or legally the same, the claim was not enforceable against the District.[50]
The Bucks financing package was approved by Wisconsin legislature and signed into law by Governor Walker on August 12, 2015.[51] That legislation, as well as the sale of Park East land for one dollar ($1.00), may come with challenges similar to those described above and those encountered when Miller Park was being constructed.
Lori Shaw is currently a 3L at Marquette University Law School where she is focusing on Intellectual Property and Sports Law. Shaw is also the Managing Editor for the Marquette Intellectual Property Law Review and is a member of the Alternative Dispute Resolution Society and Labor and Employment Law Society at Marquette. Prior to coming to Marquette Law, Shaw double-majored in History and Political Science, with a Psychology minor, at Indiana University in Bloomington, Indiana.
[1] Dale Kasler & Ryan Lillis, Kings Break Ground on New Downtown Sacramento Arena, The Sacramento Bee, Oct. 29, 2014.
[2] Martin Greenberg, Sports.comm: It Takes a Village to Build a Sports Facility, Greenberg Law Office (May 11, 2015).
[3] Ryan Lillis, Dale Kasler & Tony Bizjak, Clerk rejects petitions for arena vote, The Sacramento Bee, Jan. 24, 2014, http://www.sacbee.com/news/local/city-arena/article2589544.html
[4] BallotPedia, City of Sacramento Voter approval for Public Funding of Professional Sports Arena Act, STOP Initiative, (June 2014)
[5] BallotPedia, City of Sacramento Voter approval for Public Funding of Professional Sports Arena Act, STOP Initiative, (June 2014); Kevin Oliver, Judge Throws out Sacramento arena petition lawsuit, KCRA (Feb. 26, 2014), http://www.kcra.com/news/judge-expected-to-rule-wednesday-on-arena-petition-lawsuit/24695676
[6] BallotPedia, City of Sacramento Voter approval for Public Funding of Professional Sports Arena Act, STOP Initiative, (June 2014)
[7] BallotPedia, City of Sacramento Voter approval for Public Funding of Professional Sports Arena Act, STOP Initiative, (June 2014)
[8] Id. Kevin Oliver, Judge Throws out Sacramento arena petition lawsuit, KCRA (Feb. 26, 2014), http://www.kcra.com/news/judge-expected-to-rule-wednesday-on-arena-petition-lawsuit/24695676
[9] BallotPedia, City of Sacramento Voter approval for Public Funding of Professional Sports Arena Act, STOP Initiative, (June 2014); Ryan Lillis, Dale Kasler & Tony Bizjak, Clerk rejects petitions for arena vote, The Sacramento Bee, Jan. 24, 2014, http://www.sacbee.com/news/local/city-arena/article2589544.html
[10] Ryan Lillis, Dale Kasler & Tony Bizjak, Clerk rejects petitions for arena vote, The Sacramento Bee, Jan. 24, 2014, http://www.sacbee.com/news/local/city-arena/article2589544.html
[11] Kevin Oliver, Judge Throws out Sacramento arena petition lawsuit, KCRA (Feb. 26, 2014), http://www.kcra.com/news/judge-expected-to-rule-wednesday-on-arena-petition-lawsuit/24695676
[12] Dale Kasler, Supreme Court Rejects Lawsuit over Sacramento Kings Arena, The Sacramento Bee, May 21, 2015, http://www.sacbee.com/news/local/city-arena/article21583509.html
[13] Dale Kasler, Supreme Court Rejects Lawsuit over Sacramento Kings Arena, The Sacramento Bee, May 21, 2015, http://www.sacbee.com/news/local/city-arena/article21583509.html
[14] Id.
[15] Id.
[16] Id.; see also Ben van der Meer, Ruling Dismisses two suits again arena project, Sacramento Business Journal, Oct. 20, 2014.
[17] Dale Kasler, Judge Rejects Legal Complaint Challenging New Kings Arena; opponents vow to fight on, THE SACRAMENTO BEE, May 23, 2014, http://www.sacbee.com/news/local/city-arena/article2599605.html
[18] Dale Kasler, Supreme Court Rejects Lawsuit over Sacramento Kings Arena, The Sacramento Bee, May 21, 2015, http://www.sacbee.com/news/local/city-arena/article21583509.html. For play-by-play updates of Sacramento Arena Lawsuit Trial, see Crown Downtown, Twitter, https://twitter.com/CrownDowntown.
[19] Compl. ¶¶ 45-54.
[20] Compl. ¶¶ 55-58.
[21] Walt Gray, Sacramento under fire in fraud lawsuit, News10, June 22, 2015, http://www.news10.net/story/news/local/sacramento-central/2015/06/22/sacramento-under-fire-in-fraud-lawsuit/29137757/.
[22] Walt Gray, Sacramento under fire in fraud lawsuit, News10, June 22, 2015, http://www.news10.net/story/news/local/sacramento-central/2015/06/22/sacramento-under-fire-in-fraud-lawsuit/29137757/
[23] Katy Grimes, CA: The Quiet Sacramento Arena Lawsuit Moves Forward, Watchdog Wire- California (March 5, 2014), http://watchdogwire.com/california/2014/03/05/the-quiet-arena-lawsuit-moves-forward/.
[24] KCRA, Group Threatens Lawsuit to Block Downtown Sacramento Arena (Apr. 2, 2013), http://www.kcra.com/news/local-news/news-sacramento/Group-threatens-lawsuit-to-block-downtown-Sacramento-arena/19568354.
[25] Katy Grimes, CA: The Quiet Sacramento Arena Lawsuit Moves Forward, Watchdog Wire- California (March 5, 2014), http://watchdogwire.com/california/2014/03/05/the-quiet-arena-lawsuit-moves-forward/.
[26] Compl. ¶ 70.
[27] Compl. ¶ 71.
[28] Compl. ¶ 72.
[29] Compl. ¶ 77.
[30] Compl. ¶ 78.
[31] Ben van der Meer, Trial begins on final arena suit; city says delay could raise project cost, Sacramento Business Journal, June 22, 2015, http://www.bizjournals.com/sacramento/news/2015/06/22/trial-begins-on-final-arena-suit-city-says-delay.html
[32] Dale Kasler & Ryan Lillis, Delay could Cost Sacramento Millions in Sale of Kings Arena Bonds, The Sacramento Bee (March 6, 2015), http://www.sacbee.com/news/local/city-arena/article12879443.html.
[33] Will Kings Arena Lawsuit Against City Cost Taxpayers $150 Million?!, Sacramento News & Review (Feb. 15, 2015), http://www.newsreview.com/sacramento/pageburner/blogs/post?oid=16294354
[34] Ben van der Meer, Trial begins on final arena suit; city says delay could raise project cost, Sacramento Business Journal, June 22, 2015, http://www.bizjournals.com/sacramento/news/2015/06/22/trial-begins-on-final-arena-suit-city-says-delay.html
[35] Tony Bizjak & Dale Kasler, Judge Rules in City’s Favor in Sacramento Arena Lawsuit, The Sacramento Bee, July 24, 2015, available at http://www.sacbee.com/news/local/city-arena/article28598230.html; Gonzalez et. al. v. Johnson et. al., Not Reported in Fed. Supp. (Jul. 24, 2015), available at https://www.scribd.com/fullscreen/272506374?access_key=key-yU4HDZsBmUfpQ060zSv3&allow_share=true&escape=false&view_mode=scroll.
[36] Gonzalez et. al. v. Johnson et. al., Not Reported in Fed. Supp., 20 (Jul. 24, 2015), available at https://www.scribd.com/fullscreen/272506374?access_key=key-yU4HDZsBmUfpQ060zSv3&allow_share=true&escape=false&view_mode=scroll.
[37] Tony Bizjak & Dale Kasler, Judge Rules in City’s Favor in Sacramento Arena Lawsuit, The Sacramento Bee, July 24, 2015, available at http://www.sacbee.com/news/local/city-arena/article28598230.html; Gonzalez et. al. v. Johnson et. al., Not Reported in Fed. Supp. (Jul. 24, 2015), available at https://www.scribd.com/fullscreen/272506374?access_key=key-yU4HDZsBmUfpQ060zSv3&allow_share=true&escape=false&view_mode=scroll
[38] Tony Bizjak & Dale Kasler, Judge Rules in City’s Favor in Sacramento Arena Lawsuit, The Sacramento Bee, July 24, 2015, available at http://www.sacbee.com/news/local/city-arena/article28598230.html; Gonzalez et. al. v. Johnson et. al., Not Reported in Fed. Supp. (Jul. 24, 2015), available at https://www.scribd.com/fullscreen/272506374?access_key=key-yU4HDZsBmUfpQ060zSv3&allow_share=true&escape=false&view_mode=scroll.
[39] Tony Bizjak & Dale Kasler, Judge Rules in City’s Favor in Sacramento Arena Lawsuit, The Sacramento Bee, July 24, 2015, available at http://www.sacbee.com/news/local/city-arena/article28598230.html; Gonzalez et. al. v. Johnson et. al., Not Reported in Fed. Supp. (Jul. 24, 2015), available at https://www.scribd.com/fullscreen/272506374?access_key=key-yU4HDZsBmUfpQ060zSv3&allow_share=true&escape=false&view_mode=scroll
[40] Tony Bizjak & Dale Kasler, Judge Rules in City’s Favor in Sacramento Arena Lawsuit, The Sacramento Bee, July 24, 2015, available at http://www.sacbee.com/news/local/city-arena/article28598230.html
[41] Martin J. Greenberg, Miller Park – An Impact Beyond Baseball, Law Office of Martin J. Greenberg, June 10, 2015.
[42] Martin J. Greenberg, Miller Park – An Impact Beyond Baseball, Law Office of Martin J. Greenberg, June 10, 2015.
[43] Libertarian Party of Wis. V. State of Wis., 199 Wis.2d 790, 546 N.W.2d 424 (1996).
[44] Id.
[45] Id. See also City of Brookfield v. Milwaukee Metropolitan Sewerage Dist., 144 Wis. 2d 896, 905 (1988).
[46] Libertarian Party of Wis. V. State of Wis., 199 Wis2d 790, 546 N.W.2d 424 (1996). The five-prong test established in the City of Brookfield is as follows: 1) the classification employed by the legislature must be based on substantial distinctions which make one class really different from another; 2) the classification adopted must be germane to the purpose of the law; 3) the classification must not be based on existing circumstances only. Instead, the classification must be subject to being open, such that other cities could join the class; 4) when a law applies to a class, it must apply equally to all members of the class; and 5) the characteristics of each class should be so far different from those of the other classes so as to reasonably suggest at least the propriety, having regard to the public good, of substantially different legislation. City of Brookfield v. Milwaukee Metropolitan Sewerage Dist., 144 Wis. 2d 896, 905 (1988).
[47] Libertarian Party of Wis. V. State of Wis., 199 Wis2d 790, 546 N.W.2d 424 (1996).
[48] Id.
[49] Libertarian Party of Wis. V. State of Wis., 199 Wis2d 790, 546 N.W.2d 424 (1996).
[50] Id.
[51] Sean Ryan, Walker’s arena bill-signing assembles and unlikely alliance, Milwaukee Business Journal, August 12, 2015, available at http://www.bizjournals.com/milwaukee/blog/2015/08/walkers-arena-bill-signing-assembles-an-unlikely.html