Staff Response to Questions for AEG Addendum

8/6/2019 Staff Response to Questions for AEG Addendum

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FORM GEN. 160 (Rev, 6-60) CITY OF LOS ANGELESINTER-DEPARTMENTAL CORRESPONDENCE

DATE: August 2, 2011TO: Honorable Members of the Ad Hoc Committee on

Downtown Stadium and convA, Center Renovation - .__GerryF.Miller //' M 1 MiguelA.~' ()(~ChiefLegislat~s~r" City Administrative J;,cer

FROM:

SUBJECT: Supplemental Report Concerning the Los Angeles Convention Centerand Event Center Memorandum of Understanding

SUMMARYMotion (Perry-Smith/Garcetti, CF# 11-0023) instructed the Chief Legislative Analyst (CLA) toengage Anschutz Entertainment Group, Inc. (AEG) in formal discussions regarding its proposalto construct an event center in Downtown Los Angeles that would host a National FootballLeague (NFL) team, concerts, and other sports and entertainment events; as part ofthe eventcenter proposal, ABO would construct a new hall to replace the West Hall at the Los AngelesConvention Center (LACC) (collectively, the Project). The CLA established a negotiating team(City Team) comprised of the CLA, City Administrative Officer (CAO), City Attorney, andLACe. In addition, the Council authorized the CLA and CAO to obtain outside consultants toprovide economic and fiscal analyses necessary to evaluate the Project.On July 25,2011, the City Team released a report detailing the terms of a proposedMemorandum of Understanding (MOU) that outlines a development model of the Projectdeveloped by the City Team and ABG. This MOU is a non-binding framework that will guidediscussions on the Definitive Agreements, the contractual documents that would' implement theProject.On July 27, 2011, and July 28,2011, the Ad Hoc Committee on Downtown Stadium andConvention Center Renovation held public hearings to consider the City Team report, the MOUand associated analyses. During those hearings, members of the Committee and public speakersposed a number of questions concerning the terms of the MOU. At the conclusion of thosehearings, the Committee asked the City Team to provide a supplemental report that addresses thevarious questions raised.This supplemental report addresses the questions raised during those public hearings.


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RECOMMENDATIONSThat the City Council note and file this report.SUPPLEMENTAL INFORMATION1. Please provide a breakdown of the job creation data to provide a description of the jobsthat are expected to be created by classification and quality/salary.Convention, Sports & Leisure, International (CSL), the independent firm hired by the City toanalyze the economic impacts of the proposed Project, reported that the Project would create6,320 perrnanentjobs. Attachment A shows a detailed analysis of those jobs by industryclassification. Jobs would primarily be created in the service industry, followed by food servicesand drinking places (e.g., restaurants), advertising, and transit and ground transportation.

2. Please respond to the letter submitted by Quentin Fleming.The City is in receipt of a letter from Quentin Fleming raising questions concerning the economicvalue of an NFL team and stadium. CSL has analyzed that letter, provided as Attachment B.

3. Who is doing the improvements on SR-I101In September 2007, the City's Department of Transportation reported to Council on theimprovements proposed by Caltrans to improve SR-II0 (CF 07-1916). Caltrans seeks to improveflow of Downtown traffic by adding lanes, improving the SR-IIO/I-IO interchange, and makingseveral ramp improvements. Caltrans has begun to implement this project, which includes:

8 A lane will be added on northbound SR-l10 from 1-10 to 6th Street;e The northbound 9th Street, 8th Street and Olympic Boulevard off-ramps will be

widened to accommodate an additional lane;A lane will be added on southbound SR-IlO between Olympic Boulevard and 4thStreet;

The southbound 11th Street on-ramp will be widened to accommodate anadditional lane; and

The bridges at 9th Street and Olympic Boulevard will be widened.Caltrans reports that these improvements are intended to facilitate a smoother transition betweenSR-II0 and 1-10. Further, it is anticipated that southbound SR-II0 traffic entering from 8thStreet will now remain in one lane to access eastbound I-10, eliminating weaving across severallanes and providing improved access to the Downtown corridor.Caltrans reports that they have completed installment of median lights at the Olympic Boulevardand Ninth Street undercrossing and that the merge shoulder on the southbound SR-ll 0 to

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eastbound 1-10 connector was widened to allow additional lanes. Further, construction of aretaining wall and widening of 11th Street off-ramp are in progress.These improvements are scheduled for completion is Spring 2013.

4. Provide information concerning increased revenue estimates that would result from aSelf-Financed Project.Exhibit B in the CSL report provided as Attachment D to the City Team report of July 25,2011,provides estimates of revenues that could be generated by the proposed Project. Some of therevenues in that analysis would likely be generated in the scenario where the City rejects theABG proposal and instead implements an LACC expansion and renovation project on its own(City-only project).Thy key revenues that would likely remain include event revenue generated by the LACC,incremental taxes generated by LACC events, and additional transient occupancy tax revenuesgenerated by additional room nights at local hotels. These sources would generate an estimated$61,392,404 million over 30 years.The estimated cost of implementing a City-only project to expand and restore the LACC is $315million. The estimated revenues generated over 30 years by a City-only project would cover onlya fraction of the amount needed to service bonds for such a project and would requiresupplemental support from the General Fund.

5. Will the development of the New Hall and Events Center impact the City's bank of floorarea rights over the convention center?A complete analysis of the floor area rights related to the LACC cannot be completed untildesigns for the Event Center and New Hall are provided for the CEQA analysis. These designsare needed to determine the exact square footage of each facility and their locations on theproperty. Once this information is available, a complete analysis for floor area rights can beconducted.Current analysis indicates that approximately four million square feet of floor area rights areunused at both the West Hall and South Hall properties of the LACC. This unused floor area isthe underlying resource that is available for use in the City'S Transfer of Floor Area Ratio(TFAR) program. The City is able to sell the available floor area to other developments in theDowntown area, creating economic value from the unused floor area at LACC.It is anticipated that designs for the Event Center and New Hall would result in the use of floorarea that is currently not used. This would reduce the amount of floor area available in the TFARprogram. It should be noted, however, that any ground lease for the West Hall property would bebased on fair market value for the property. This fair market value would include the value of anyfloor area rights available for use, so the City would receive compensation for such use.

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various forms of public support, inclusive in some cases of the issuance of tax exempt bondssupported by hotel revenues. Redevelopment resources that could be available in Los Angelesfor hotel development include tax increment financing, assistance for land acquisition andpreparation, infrastructure development, development of parking capacity, and the creation ofpedestrian- friendly corridors.One hotel development proposal has been announced. The Olympic North hotel developmentwould result in the construction of two hotels in a single building, adding 377 hotel rooms to thearea. Motion (Perry-Reyes, CF 11-0966) was introduced in June 2011 instructing the CLA toevaluate resources available to support development of this hotel development.A general, Citywide hotel development incentive program may be a more effective means toencourage development of hotels in the area.8. The metro stop at Pico Boulevard is going to have increased mage. What steps are beingtaken to make sure the platform area has enough room to accommodate transit users?ABO reports that analysis of increased demand in use of the Blue Line Station at Pico Boulevardwill be included in the transportation study to be prepared for the Environmental Impact Report(EIR) on the Project. That transportation study has not been completed, so no recommendationsare available yet to address future needs of the Blue Line Station at Pico Boulevard.

9. The MOU recommends creation of a macro-booking committee to coordinate eventscampus wide. Has it been contemplated who will chair this committee and who will retainthe master calendar?LACC and AEO currently meet to establish the existing campus wide calendar and coordinateparking, traffic flow, logistics, conveyance and alignment of event specific information andresolution of potential event related conflicts/challenges. The Macro-Booking Committee wouldbe expanded to include LA Inc.The LACC has offered to take the lead in coordinating activities of the Committee, thoughrotating leadership is an option.It is expected that the Macro-Booking Committee would continue the current operationalperspective and integrate the macro booking policy, when established and applicable, within itsfunctions. LACC would continue to create and retain the master campus calendar and chair thecommittee. The committee would include both operational and sales representatives of themember organizations.

10. Ifdeveloped and successfully operated the Event Center is estimated to attract 1.3million attendees a year. When performing the economic analysis of this proposed Projectindirect revenues like increased transient occupancy tax and sales tax were not taken intoconsideration. Would it be possible to have an analysis of indirect revenues?

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Exhibit B in the CSL report provided as Attachment D to the City Team report of July 25, 2011,provides estimates of revenues that could be generated by the proposed Project. One tableprovides a breakdown of all indirect revenues that they estimate would be generated by theProject. That data is summarized below in Table 1.

Table 1Estimated Indirect Revenues from the Proposed ProjectRevenue Source Nominal Amount

Sales Taxes -- Offsite $26,106,228$6,884,882$61,392,404$38,961,890

Business Taxes -- OffsiteLACC Incremental TaxesTransient Occupancy TaxesTotal $133,345,404Source: Convention, Sports & Leisure, International, "FiscalAnalysis of Proposed Downtown Stadium and ConventionProjects", July 22, 2011.

Attachments:

A: Jobs Supported by Industry

B: Response to Quentin FlemingC: 2008 Signage Agreement Between the City and AEG, Excerpt: language concerning

display ofLACC events on signage

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Attachment AJobs Supported by IndustryPrepared by CSL


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Attachment BResponse to Quentin FlemingPrepared by CSL


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July 29, 2011

Mr. Gerry MillerChief Legislative AnalystCity of LosAngeles200 North Main StreetCity Hall East, is" Floorlos Angeles, CA 90012Dear Mr. Miller:Per Council Member Rosendahl's request, I have provided a response to the letterprovided by Quentin Fleming on July 28, 2011 regarding our economic analysis of theAEG proposal. We have addressed each of his

1. Fleming Statement - the assertion in the executive summary has been clearlyand consistently proven wrong by research.

CSLResponse - there is a body of academic research that always denies the validityof any economic impact study related to a sports venue such as the proposed eventcenter. However, each venue and study has its own unique set of circumstances.Specifically, our analysis quantifies the impact on the City of los Angeles and onlycounts those revenue streams that are NEW to the City and does not includeDISPLACEDrevenue streams. We have made the assumption that not all of the fansattending NFL games come directly from the City of Los Angeles and as such thoseare new dollars impacting the City economy. It is doubtful those same academiceconomists would argue that the development of Staples has had no impact on theCity of LosAngeles. The development of Staples was a direct impetus for upwards of$2.0 billion of additional development in downtown area. That development, theoperations of Stapies Center and the presence of the Lakers, Clippers, and Kings alsohas a positive and direct impact on the City.


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Mr. Gerry MillerJuly 29, 2011Page 1 2

2. Fleming Statement - the assertion of new taxes to the City of $146 million iswrong due to the substitution effect.

CSL Response - The analysis undertaken by CSLaccounts for the substitution effect.As it relates to the new tax revenues, approximately 40% of those revenues aredirectly related to the possessory interest tax payments received by the City fromAEGfor the operations of the parking garages and event center. If this project doesnot happen, the City will receive none of that money. Thus there is no substitutionof dollars that the City would have received. The tax projections also include newbusiness license tax revenue from the stadium and team operations. Like thepossessory interest tax, if a team does not relocate to Los Angeles and a stadium isnot built, there is zero business license tax revenue generated. This revenue isconsidered net new to the City. The projections of the TOT tax include anadjustment to account for the possibility that a portion of the new tax will begenerated at hotels that currently receive rebates of those taxes. The projectionsalso do not account for any new hotel developments or additional ancillarydevelopment as a result of the project.3. Fleming Statement - the reliance on AEG for cost projections raises serious

methodological concerns.CSL Response - The reliance of AEG cost projections has no impact on themethodology of our analysis. Based on the current MOU, AEG is responsible for allcost overruns. The impact of additional costs would only reduce AEG's internal rateof return and would have no direct impact on any of the City impact numbers wehave generated.4. Fleming Statement - The issue of revenue sharing is essentially irrelevant as AEG

will likely own the NFLteam or a portion of the team.CSL Response - We agree that it is likely that AEGwill purchase a percentage of theteam and possibly the entire team. However, a lease structure is still required toevaluate the financial impacts to both the team and stadium entity. Even if AEGowned both entities it does not significantly impact the IRR as they would berequired to pay a major relocation fee, purchase the team and pay for the stadium.Those total costs could easily exceed $2.0 bill ion and could reach $3.0 billion.


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Attachment C2008 Signage Agreement Betweenthe City and AEGExcerpt: language concerningdisplay of LAce events on signagePrepared by City staff


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2008 Signage Agreement Between the City and AEGExcerpt: Language concerning display of LACe events on signage

Electronic Displays. Subject to the terms and conditions set forth in Section 2 of this Agreement,electronic display boards and message reader boards (the "Electronic Displays") in selectlocations around the Convention Center as set forth in the SignagePlan. Such ElectronicDisplays will be used for (i) the display of event announcements, informational messages andpromotional displays on behalf of exhibitors, promoters, and participants in events at theConvention Center and LA Live ("Event Use"), which Event Use shall include (a) announcingand publicizing Convention Center, Staples Center and LA Live events, (b) selling promotionalopportunities on such Electronic Displays to exhibitors and participants in such events, and (ii)the sale of commercial advertising by LandCo. The Electronic Displays shall be usedapproximately twenty-five percent (25%) for Event Use, approximately twenty-five percent(25%) for display of advertising for LandCo's District Sponsors (as hereinafter defined), andapproximately fifty percent (50%) for Commercial Sales by LandCo. The Event Use shall beallocated among the Convention Center, Staples Center, and LA Live based on the proportion ofactual events occurring at the respective facilities; provided, however, that during ConventionCenter events, the Event Use will be allocated principally to such Convention Center events. Forpurposes of this Agreement, "LandCo District Sponsor" shall mean one (1) of up to ten (10)sponsors to whom LandCo has granted sponsorship and exclusivity rights throughout theDistrict. Subject to the terms of this Agreement, including but not limited to, the City's rights toprovide Event Use signage to Convention Center exhibitors, LandCo shall control and operatethe Electronic Displays.Event Use Signage. The City shall have the right to provide promotional displays to exhibitors,promoters, and participants in events at the Convention Center and LA Live.Restrictions on Event Use Sales. Any promotional opportunities sold by the Parties for EventUse shall be sold to exhibitors or other bona fide participants in events held at the ConventionCenter, LA Live or Staples Center and shall not be sold to advertisers (i) seeking to purchaseadvertisements for the purpose of undermining a competitor who is a LandCo District Sponsor,or (ii) seeking to otherwise engage in so-called "ambush marketing" against any LandCo DistrictSponsor, as reasonably determined by LandCo. Additionally, Fixed Signs sold to eventexhibitors or participants for Event Use shall only be displayed during the period beginning nomore than five (5) days prior to the applicable event and ending no more than five (5) daysfollowing conclusion of the applicable event. Use of Fixed Signs for promotion of the applicableevent itself by the Parties is not subject to this time limitation.Advertising Conflicts. The Parties shall cooperate in minimizing conflicts between third partyadvertisers and Convention Center exhibitors. Without limiting the foregoing, if one or moresigns displayed by LandCo on or around the entrance to the West Hall or South Hall of theConvention Center advertise a direct competitor of a major exhibitor in a proposed ConventionCenter event and such conflict is reasonably likely to materially impair the City's ability to bookthat event as determined by the City in its sole discretion, the City shall have the right to requireLandCo to cover such sign(s) for the duration of the proposed event; provided however, that inno event shall LandCo be required to remove or cover any particular advertiser's signs for anaggregate of more than ten (10) days in any calendar year.

Staff Response to Questions for AEG Addendum

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