Detroit, Rick Snyder — July 26, 2013 at 7:07 am

New Red Wings stadium in Detroit will be built using $285 million in public funds


Republicans hate picking winners and losers except when they don’t

Amid all the drama surrounding Detroit’s bankruptcy this past week, there was a supremely ironic announcement made that came the same day a federal bankruptcy court judge cleared the way for Emergency Manager Kevyn Orr to proceed with the Chapter 9 filing. Plans for new sports complex, centered around a new Red Wings hockey arena, were revealed. The complex will cost $650 million of which $285 million will come from tax dollars. The arena itself will cost $450 million and 58% of that cost, $261.5 million, will be paid for by tax revenues.

The bonds are being issued by the state in part under a tax-increment-financing, or TIF, plan. Under a TIF arrangement, “future gains in taxes [are used] to subsidize current improvements, which are projected to create the conditions for said gains.” In other words, the project will essentially pay for itself by increasing property values and tax revenues in the future after it is built.

Here’s more:

Backers explained the bond repayment sources as:

• Approximately $12.8 million annually (not to exceed $15 million) from a special DDA tax capture.

• Approximately $2.15 million in average annual payments made by the DDA from other annual property tax collection.

• $11.5 million annually from Olympia [Development of Michigan].

Critics have blasted the arena deal as unnecessary subsidies for a billionaire pro sports team owner in a city on the precipice of municipal bankruptcy.

A couple of things here. First, I’m not against the government subsidizing investments that will benefit us in the future. This process, what Republicans typically call “picking winners and losers” is what I call “investment in the future”. In this case, it’s clear that the investments in the area where Tiger Stadium, Ford Field, and the Fox Theater are is a nucleus of positive development that will have a positive impact on Detroit as it moves forward. A new hockey arena in a city that calls itself Hockey Town is a natural addition.

But where is the hue and cry and utter outrage from Republicans on this? Where are the condemnations about “picking winners and losers”?

It is absent and the reason is because they are complete hypocrites. The only time you hear “picking winners and losers” rhetoric is when Democrats are proposing investing in the future. When Republicans are involved, it’s “investment”.

And, sure enough, here’s Republican Governor Snyder on the new complex:

When I asked Orr and Gov. Rick Snyder on Friday if they felt awkward about backing a new downtown sports emporium while so many people in Detroit’s neighborhoods are struggling amid poor city services, they said no.

“It’s a public-private partnership that will lead to a number of construction jobs and more tax revenue,” Snyder said. “Let’s try to do as much as possible to grow the city.”

On the other hand, here’s the good governor in an interview a couple of years ago with the National Federation of Independent Business:

One of the problems with the tax credit world is that you’re picking winners and losers, and government is not really competent to do that. I was a venture capitalist. I know how hard it is to pick winners and losers, let alone [saying] government can do it.

So, yeah, hypocrisy much?

Second, there are roughly 90,000 small businesses in Detroit that have only one employee, according to Rev. David Bullock. There are undoubtedly tens of thousands of more with just a small handful of employees. Imagine the potential that could be unleashed if the business world and even our [gasp!] state government were to start investing in that pool of entrepreneurship? Sadly, because it doesn’t involve wealthy business owners — the pals of Governor Snyder and his cohort — that would just be “picking winners and losers”.

I think the new arena complex is a good idea and believe it will help stimulate growth in Detroit. But the rank hypocrisy is galling and the lack of investment in small businesses in Detroit is just one more bit of evidence proving that the end game for Detroit involves a whole lot of already wealthy men and women getting even wealthier while the citizens of Detroit will be left with crumbs and expected to thank them for turning on the streetlights.

Adding… Frank Beckman, someone with whom I rarely agree, explains the hideous optics of Wednesday’s announcement pretty well:

On the same day — Detroit’s 312th birthday — the city defended its filing for Chapter 9 bankruptcy due to years of fiscal mismanagement, the state of Michigan announced a whopping $450 million bond project to build a new hockey arena for Detroit Red Wings owner Mike Ilitch. Another $200 million will be used to develop the area around the new arena for housing and retail projects.

As optics go, the arena funding press conference couldn’t have come at a worse time and was a grievous blunder by the Snyder administration and Detroit economic development officials.

Public funding of arenas is a contentious issue to begin with. While Gov. Rick Snyder said the project “should increase the tax base of the city longer term and should increase the employment opportunities for Detroiters,” numerous studies have shown that the benefit of publicly funded projects like this are minimal at best, and economic losers at worst. […]

Comerica Park and Ford Field were similarly built through the partial use of public funding power and so far there’s been no sign that taxpayers will be failed by the issuance of those bonds, which are being repaid through taxes being collected in Wayne County on car rentals and hotel rooms.

The hockey arena will use a different economic model using the parking and concessions dollars to repay the bonds, so there should be no jeopardy to taxpayers and private backers so long as fans keep showing up in large numbers for Red Wings games.

Let’s just hope the people who came up with the idea for the timing of the announcement weren’t the same ones doing the cost-benefit analysis of the project.

  • Paul M

    Try to be clear here: are the taxpayers of Michigan funding this project, or are they financing the project???? HUGE difference. If the debt is funded by, say, a tax on Red Wing tickets, parking, beer and hot dogs at the arena and on property tax increases on the arena itself, that’s a far, far cry from a bankrupt city laying off more employees or threatening retirement benefits to pay for a new arena.

    While the city or state financing this does carry its own set of risks (what if tax projections fall short?) it is night/day different than the taxpayers funding it with direct outlays.

  • Sammy

    Missing the larger point. Stadia should never be publicly funded at all! I know of no sportscomplexcenterarena that gives a percentage of the sales to the county/city/state/whatever, so why should private owners expect a huge chunk of taxpayer cash? It’s just a business, so let the business owners pay for it.

    • Paul M

      In my home city of Washington our ballpark was built using bonds that are being paid by exactly the types of taxes and fees (on baseball customers and the benefitting businesses) that I just described. No general funds are used. You and I agree: the public should not FUND the stadium but I think an argument can be made to finance them.

      • Sammy

        That’s less objectionable, but I think owners should shoulder the whole cost and build it into the product they’re selling. Target doesn’t get a percentage of the sales tax on all the stuff they sell for operating expenses. Overhead comes from profits, or it should.

  • Marshall J.

    A genius idea. Thousands of jobs in various sectors and an avenue to bridge the gap between Detroit as we know it and the future. Economic investment will bring business into the city. Really is a win win.

  • bozolives

    There are seven studies that show there is NO statistically significant positive correlation between sports developments like this and economic development.

    And there is this from the St. Louis Fed – “The use of public funds to lure or keep teams begs several questions, the foremost of which is, “Are these good investments for cities?”

    The short answer to this question is “No.” When studying this issue, almost all economists and development specialists (at least those who work independently and not for a chamber of commerce or similar organization) conclude that the rate of return a city or metropolitan area receives for its investment is generally below that of alternative projects. In addition, evidence suggests that cities and metro areas that have invested heavily in sports stadiums and arenas have, on average, experienced slower income growth than those that have not.”

    Other studies have shown a negative impact on local entertainment spots where stadiums are located. There is only so much consumer spending dollars to go around, a dollar spent at a stadium is a dollar less spent at a bar or restaurant or movie theater.

    This is beyond stupid to do.

  • suzan

    As near as I can tell, whatever they say to the contrary, Republicans and Democrats both love spending taxpayer money on the stuff that they care about. What surprises me (in a good way) is that Republicans are spending money on/in Detroit. Go figure.

    • ke

      no they are stealing money and assets from the public to fund their benefactors

  • Anne FE

    financing is not about “picking winners and losers”. It is an important
    economic development tool that can be used by anyone making upgrades to
    a functionally obsolete building, brownfield etc… and creating jobs.
    This is how DDAs, Brownfield Authorities, cities etc.. in Michigan
    attract investment. Almost all development in downtown Detroit that is
    currently occurring is using some degree of TIF financing. There are all
    kinds of questions and concerns about the stadium development. The TIF
    issue isn’t the problem – any sort of development at this site would be
    able to take advantage of the TIF whether it be a stadium, a hotel, a solar manufacture, anything! I don’t think the author really
    understands how TIF works. All of those entrepreneurs who he talks about could take full advantage of the TIF if they launch a business that will offer employment to multiple individuals. I work with several start-up companies trying to do exactly that and TIF can be an important tool for making an investment in a building and launching the company.

    • I didn’t say TIF funding was “picking winner and losers”. Not at all. It’s the hypocrisy of Republicans using that as an excuse
      to shoot down things they don’t come up with or that don’t benefit their corporatist benefactors.

  • Neil Johnson

    It is my hope that the NHL Players association
    members will refuse to play in the new arena, knowing that their union brothers and sisters lost their pensions to pay for this abomination of corporate welfare.

    • Garymother Freekincoleman

      ” and then they said……. “It is my hope that the NHL Players association
      members will refuse
      to play in the new arena, knowing that their union brothers and sisters
      lost their pensions to pay for this abomination of corporate welfare.” ……………….. HAHAHAHAHAH OH HAHAHAHAAAAA HAHA!

      (pic of NHL PA, and owners laughing heartily with cigars and drinking single malt scotch)

  • Anne FE

    Also the DDA tax capture they mention is paid by businesses within the DDA district and not residents. These are all businesses that have likely received benefits by being located in the DDA area.

  • ke

    looks like our govenor will do anything for business and nothing for the people. perhaps the money in the pension fund will help finance a new casino? by the way how can a cassino owner own a sports team?

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  • Matt

    I LOVE the Red Wings. I want nothing more than for them to have a beautiful gem of an arena to play in. I’m torn about this public funding piece though. I understand how it all works, but part of me still isn’t ok with it. Part of me wishes Mike Illitch would just stand up and say, “The City of Detroit and the state of Michigan has done a lot for me and my family. We’re going to build this without public funding as another way to say ‘Thank you’ to all of you out there who have supported us, and continue to support us.”

    It’ll never happen, but since he stands to make a truck load of money off the new stadium it would be nice.

    • Spot on comment and I couldn’t agree more. Thank you.

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