SANTA CRUZ — The City Council approved city-based financing and construction plans Wednesday night for a 33,000-square-foot temporary arena for the Santa Cruz Warriors, a team of 12-14 players who will relocate from North Dakota in about three months.

Santa Cruz would loan the Warriors $4.1 million and lease the facility at 140 Front St. to the NBA development league team for $532,000 in pre-paid rent and additional annual loan payments of at least $250,000 during the seven-year deal — all of which will be applied to the loan. If the Warriors leave Santa Cruz before seven years, the team will be considered in default.

The council approved permits with numerous parking, traffic and noise-muffling conditions aimed at addressing concerns raised by Beach Hill neighbors. The financing scheme and facility plans both passed 6-0 with Councilman Tony Madrigal absent, with cheers going up from supporters at the end.

The nearly six-hour meeting came to a close shortly before 1 a.m. Thursday.

“I do believe this is a beneficial project for the community but I equally believe the concerns the neighbors have are founded and that doesn’t mean they will also materialize,” Mayor Don Lane said.

THE PUBLIC SPEAKS

Throughout the evening, residents urged the council to delay a vote on the project, seek another site or restructure the financial arrangement to reduce the city’s risk. Others told the council bringing a basketball venue with the potential for other community uses to a partially blighted area between downtown and the beach would give the city a much-needed economic boost.

Beach Hill neighbors who live behind the site are concerned about parking, noise and traffic impacts.

Joan Colonna, a Beach Hill resident, presented a petition with at least 150 signatures asking to remove parking meters in her neighborhood and approve year-round parking permits for residents.

“We live in this neighborhood knowing full well the impact of summer tourism,” she said. “But this is something we endure because it takes places for three months out of the year, and tourism is a major source of income for Santa Cruz. Our neighborhood takes the hit for the greater good of all of Santa Cruz. We are not NIMBYs.”

Local developer Joe Quigg, former Beach Flats Community Center Director Reyna Ruiz and others said the area was in dire need of a boost and they believe the parking and traffic access should be worked out. City planners have said the special permitting required for the project is merited, in part, because it draws links between downtown and the beach.

“Personally, I want to hear the noise,” Quigg said. “We need a stimulus to get this area going.”

FINANCING PLAN

The facility originally was estimated to cost $2.8 million but sandy soil and other construction issues necessitated a sturdier structure and raised costs to $5.4 million. The facility would come down in seven years unless the team and city agree to extend the arrangement while pursuing a more permanent deal.

The $4.1 million public interest loan can only be used for capital investments. The fund, created by selling city properties, contained $6.1 million as of June. The interest rate will be 3 percent.

Bonnie Lipscomb, the city’s economic development director, acknowledged, “There is no question there is inherent risk involved.” But she said the city had studied development league attendance rates to determine the Warriors’ ability to repay the loan and felt comfortable about the financing, even absent additional revenue the city might take in from other community uses.

In addition to the loan and rent payments, the city will collect concessions revenue, including from wine and beer, and apply it to the debt. Revenue from renting the arena to UC Santa Cruz sports teams or other groups also will be applied.

If debt remains after seven years, the city will split it with the Warriors. The city’s general fund also will benefit from increases in hotel and sales taxes, and share in merchandise and ticket sales once the loan is repaid.

The Warriors will pay $35,000 in annual lease payments to the Santa Cruz Seaside Co., which owns the parking lot where the building will go, and relocate Beach Boardwalk employee parking to downtown garages with under-used permit capacity and provide shuttles for workers. The company would also paint a Boardwalk logo on the arena floor six feet from center court – a sponsorship the team values at $50,000.

However, the deal with the Seaside Co. is still not inked, and Lipscomb said any work on the site would be at the Warriors’ own risk until the deal is completed. City officials believe the deal will be finalized soon.

COLLATERAL CONSIDERED

As for collateral, the city is giving the Warriors credit for pre-paid construction expenses covered by the Warriors, as well as the value of the pre-paid rent, the city’s share of a naming rights sponsorship by Kaiser Permanente and the value of the building if it were leased out to another renter if the team leaves. Some residents questioned that approach, asking why the parent team, the Golden State Warriors, wasn’t providing backing.

County Treasurer Fred Keeley, who chaired a blue-ribbon panel of financial experts who reviewed the loan deal, reiterated, “We believe the repayment is very sound.” He said the risk to the city, due to loan and repayment guarantees, is about $500,000 regardless of how popular the Warriors prove to be.

Santa Cruz Warriors President Jim Weyermann said NBA limits on debt loads prohibited financing from Golden State Warriors. Opponents are worried the new company created for the Santa Cruz team are worried doesn’t have enough assets to repay the loan if revenues fall short.

Councilman Ryan Coonerty addressed concerns about why the team needs city financing, saying the Warriors first studied using the Civic Auditorium but that it didn’t meet NBA standards. If the Civic had worked, there would be no need for a construction loan, he said.

FACILITY CONDITIONS

Conditions council members agreed to include:

A parking and signage plan ensuring downtown is the preferred parking area for arena visitor, including signs on Ocean Street directing vehicles downtown and Warriors publicity indicating that approach.

Working with neighbors to develop a parking program that may involve taking out some meters and bagging others on game days in residential areas surrounding the arena. The plan also could include year-round parking permits for residents.

Keeping Laurel Street Extension, a vital Beach Hill neighborhood entrance point, open during game days except for brief traffic-control periods when only residents will be able to get in.

Banning noisemaking devices sold or given away at games.

Black-out days for games or other commercial events on summer Friday nights and weekend days and during other high-traffic events in the area

No concerts with amplified music without a modified permit after a public hearing.

Security staff will clear area around facility an hour before and after games.

Monitor sound within the first month of Warriors games and create a mitigation plan if there are neighborhood problems with noise.

Council members and other city officials will meet with neighbors 45 days before first game to review concerns and take steps to address them.

Wine and beer sales only to be cutoff after third quarter.

Backpacks will be checked upon entrance.

Secured bike parking nearby.

Keeping restoration of Beach Hill stairway from Pacific Avenue on city’s list of potential capital improvements.

A DAY’S DELAY

The council was supposed to hold the hearing Tuesday, but delayed it a day to address concerns from the Beach Hill Neighbors Association over the timing of the meeting and whether the expedited handling of the proposal complied with state environmental law, local planning procedures and parking rules. The association also made recommendations Wednesday on the design of the building to muffle noise.

Before the meeting, association president Don Webber said whether neighbors file a lawsuit would depend on conditions put on the project. The group will meet Sunday to determine its next step.

“The association has never taken the position that a sports facility is wrong for Santa Cruz,” he said. “Our members understand the benefits of expanding economic activity beyond the summer tourist season, as well as better utilizing the event spaces we have and maybe adding to them.”

At the meeting, Webber said the concerns were not meant to be threatening.

“We all kind of wish the Warriors well,” he said. “We like basketball too. We are not deal killers.”

Weyermann, the team president, said before the meeting he would resist demands on design by the association but wants to build a good relationship with the group. He did offer a new designated parking program that would assign fans a specific spot downtown and “traffic ambassadors” to direct fans away from Beach Hill.

“I am not willing to have the Beach Hill Neighbors Association dictate design and materials associated with the building of this building,” Weyermann said.

WHAT COULD HAVE HAPPENED

Weyermann had drafted contingency plans in case the council voted against the plans or a delay would keep the team from hosting its first home games of the season at the planned site.

He said the Warriors would have been out about $800,000 in pre-construction and other costs if the deal, in the works since the spring, fell through. The costs included parts of the structure, as well as the basketball floor, shot clocks, scoreboard, some permitting fees and soil and sound studies.

If there had been a substantial delay in construction, Weyermann said the team could play its first four home games at Cabrillo College. And if the deal totally fell through, he said games could be moved to the Golden State Warriors practice facility in Oakland until a new location was identified.

Weyermann said he doesn’t believe, if a suit were filed, a judge would halt facility construction.

“We think we are in a strong enough position under the law and what we’ve done and that a reasonable judge would say we met the requirements,” he said.

Weyermann has said construction will begin as soon as the council approves the permits and financing. Meanwhile, he said the team is negotiating housing for its players, who won’t arrive until mid-November and are on 4.5-month contracts that max out at $25,000 in salary. He expects players may stay for the season at a beach-area hotel while opposing teams and coaches will stay at the Hilton in Scotts Valley.

Follow Sentinel reporter J.M. Brown on Twitter @jmbrownreports