We wish the teams would stay. The current location is in the heart of the region just a few blocks from the White House. The arena anchors a downtown neighborhood of residents, offices, bars and restaurants hugging Seventh Street NW, and it sits on top of a Metro hub that’s easily accessible to residents from all corners of the region. Losing these teams will be a blow to an increasingly hollowed-out downtown Washington. Ideally, the teams’ owner, Ted Leonsis, would reconsider the city’s generous final offer to stay in a downtown he helped to succeed for many years.

But Mr. Leonsis and his company, Monumental Sports & Entertainment, appear ready to leave. Unlike the space in Potomac Yard, the teams’ current arena has little room to expand. D.C. is struggling to combat a violent crime surge, and the city did too little to address years of complaints about nuisances and declining safety in the arena’s neighborhood. More importantly, the city failed to get its best offer to Mr. Leonsis in time once he indicated he was serious about moving. If Mayor Muriel E. Bowser (D) had submitted her final proposal — an $800 million arena renovation, with $500 million paid for by the city — months ago, Mr. Leonsis might have accepted it. In the meantime, Virginia Gov. Glenn Youngkin (R) offered Mr. Leonsis a $2 billion development with a massive new arena surrounded by the sorts of things that are harder to build in downtown Washington: team practice facilities, offices for Mr. Leonsis’s company, a hotel, an additional concert venue, a Virginia Tech campus, housing, shops and restaurants.

For Mr. Leonsis to consider staying, D.C. would likely have to show progress on combating crime and a vision for revitalizing the neighborhood. The iconic Gallery Place mall and office complex adjacent to the arena is hemorrhaging tenants and seeking a new owner. It’s worth Ms. Bowser making a final pitch for the teams. Washington needs them more than Virginia does, and city officials shouldn’t give up until the relocation deal is final. Even if they fail, committing to some of the things that would make D.C. a more attractive place for Mr. Leonsis would make it a better place for others to do business, too.

Our view: D.C. will lose more than the Capitals and Wizards if it doesn’t act fast

Nevertheless, Mr. Leonsis is probably going to move the teams. While Mr. Youngkin and other Virginia leaders would no doubt rejoice, there are risks on their side of the Potomac. The new arena project’s $2 billion price tag is hefty. Mr. Leonsis would pay $400 million up front and then another $400 million over time to rent the arena. The city of Alexandria would kick in about $100 million. The remainder — roughly $1.1 billion — would come from bonds that are repaid by taxes collected within the 12-acre site. That means all the sales taxes, parking revenue, income taxes, corporate taxes and a ticket tax would go to repay the bonds.

Mr. Youngkin says that no Virginia taxpayer money would fund the project. Even modest crowds would likely generate enough revenue to pay back the bonds. But if those crowds fail to materialize, Virginia taxpayers would be on the hook for up to $577 million, since the state is backstopping part of the loan. Alexandria residents would be responsible for another $577 million in the worst-case situation. Virginia lawmakers should ask about scenarios in which there is another pandemic and 220 events a year don’t happen. State leaders should also make ironclad Mr. Leonsis’s promise to keep the teams at the Potomac Yard site until 2064 or pay back the loan balances. Many cities — ask St. Louis and Oakland — have been stuck paying bills after sports teams left.

Transportation is the Virginia site’s biggest drawback. The arena could hold 20,000 fans. But the current Potomac Yard Metro station is small. The highways around Potomac Yard are already jammed, and there’s no Amtrak or Virginia Railway Express stop there. Mr. Youngkin’s team says the state will invest $200 million to help, but they haven’t said where that money will come from. Mr. Youngkin has also yet to promise any more funding to help keep Metro going in 2025 or beyond. State lawmakers need to ensure shoring up Metro is part of any arena funding package. Also still unknown is who will pay for extra policing in the area, and how to ensure that a new Virginia Sports and Entertainment Authority, which would oversee the new arena district, has to account for all the money and contracts it will handle. A lack of transparency with similar authorities in Chicago caused massive problems.

As Virginia sorts out these crucial details, D.C. needs to prepare for a post-Wizards world. Ms. Bowser has launched a task force to generate new ideas for the Gallery Place-Chinatown neighborhood. There’s early talk of a concert venue and a welcoming public space in the area. (Cleveland’s downtown Public Square is a good model, with a cafe, a splash pad for kids and green space for relaxing.) If the city doesn’t have to give Mr. Leonsis $500 million, it could use the money for other needs.

But no amount of money will make up for failing to get the basics right: ensuring public safety and cultivating a business-friendly climate. D.C. can no longer assume that people and businesses want to locate in urban centers; the city and its leaders must compete for them. Even if it loses this round, Washington can rally for the next.