Downtown Detroit is bustling with activity. Baseball fans across the region have flooded into town, packing portable grills, beer coolers, and happy faces. The Detroit Tigers are set to play the Kansas City Royals in the team’s home opener before a sold-out crowd at Comerica Park. After the winter that metro Detroit just went through, it’s a beautiful day for baseball.
Down the road, inside the Coleman A. Young Municipal Center, Detroit City Council President Brenda Jones calmly acknowledges the festivities while calling a special council meeting to order. “It’s Opening Day,” she says, before adding, “It’s going to be a great day.”
A Detroit resident in the audience shouts at Jones. “It’s not gonna be a great day if you’re going to give away Joe Louis Arena!”
Though downtown may have been in a celebratory mood, Detroit City Council had an important task at hand. It was about to decide the fate of the Joe, a city-funded facility the Detroit Red Wings have called their home since 1979.
The irony that the decision coincided with Opening Day appeared lost on the room: It happened to be the last day before an agreement to construct a new hockey arena for Tigers owner Mike Ilitch’s other sports franchise, the Red Wings, would expire.
It was tense inside council chambers. City officials were on-site to lay out the proposal blow-by-blow. If councilmembers didn’t approve the proposal to demolish the Joe that day, and agree to a retroactive lease for the arena that City Council legislative analysts said would generate less revenue for Detroit’s coffers, the deal to construct a new Red Wings home could be — well, at best — delayed. Under state law, Detroit Emergency Manager Kevyn Orr could use his unprecedented powers to ensure the deal keeps moving forward. He had already been on record in support of the project. This meeting was, to some degree, a technicality.
Nonetheless, city and state officials indicated to councilmembers that time was of the essence. If passed, it was implied, the new Red Wings arena would give the city an opportunity to experience more of what’s happening out there. Think of the people, the business patrons, the image of a Detroit with three professional sports stadiums — alongside Ford Field and Comerica Park — on top of a thriving theater district.
The resident continues to shout at Jones: “This is an ongoing effort to destroy the heritage of the City of Detroit!”
For some, this is the note Ilitch has struck. While the 84-year-old owner of the Tigers and Red Wings has received enormous praise for his decision to construct a $450 million new hockey arena near downtown — with the intention of drawing a significant amount of adjacent investment in the lower Cass Corridor, an area with scant economic activity — that’s just how some see it.
The deal before Council that day left a sour taste for other reasons too: The demolition of the Joe would be financed by $6 million in bonds from the state of Michigan (see: public tax dollars).
And even though City Council could’ve laid down and forced Orr to flex his powers, the proposed lease and demolition agreement passed in a narrow 5-4 vote.
By ditching the Joe Louis Arena for a 21st-century state-of-the-art facility, Ilitch reps have said the Red Wings will be able to remain competitive in the National Hockey League. It’ll bring additional jobs to the city, they said. And, if all goes according to plan, it will fill out a blighted part of Detroit, bridging the currently thriving downtown and Midtown districts.
That opportunity will cost taxpayers more than $260 million, about 58 percent of the arena’s total cost.
Critics of such subsidies see things differently.
At a time when the city of Detroit was on the cusp of bankruptcy, state lawmakers swiftly passed a bill that, by and large, will help grow the net worth of Olympia Development of Michigan, the Ilitches' real estate arm, for years to come. It was simply another handout to support a billionaire’s cause, they said.
When legislation was introduced to a state Senate committee that would supplement construction costs of the new arena, lawmakers took just over a half-hour to consider the bill and and approve it. It received much less scrutiny and fanfare than a $350 million pledge to shore up bankrupt Detroit’s pension funds.
Project backers are quick to point out that the new arena doesn’t use a single dollar from the city’s general fund. By building on the momentum in downtown and Midtown, they contend, the city only stands to benefit from the new arena.
But what’s typically left out of their dialogue is that new stadiums historically boost the value of a sports franchise and increase the wealth of the team owner. And in some instances, publicly subsidized arenas have delivered questionable economic benefits to the city.
Basically, it’s an expensive gamble with bad odds.
As plans for the new Red Wings area slowly trickled out to the public last year, it would take even those critics by surprise. Not only would the proposal turn over a wide swath of land between downtown and Midtown to one single entity, the Ilitch organization landed more financial support from the public than it did with Comerica Park. The Ilitches will also keep all the revenue generated at the arena and any naming rights, which typically fetches millions of dollars a year.
The question that would later linger among some: Why was the state supplementing the cost of a billionaire’s arena while its largest city was plunging into bankruptcy?
Generally, the answer appears to be that the Ilitches have proposed a vision for a Detroit that’s desperate for anything. They had a grand vision that some saw potential in. It just required some help from the public.
The Ilitch family’s history with their Little Caesars enterprise is well-known. The couple's beginnings in Detroit started when they opened their first Little Caesar's restaurant inside the city in 1967. They later purchased the Fox Theatre in 1987. Soon after, they moved their successful pizza empire downtown. It was the beginning of a commitment that has unquestionably lent value to Detroit’s long battle in returning the city to its former glory. The Ilitches' purchases of the Detroit Red Wings (1982) and Tigers (1992) have been an absolute success in cementing the city as a bona fide sports town.
And even though the family amassed criticism over the years for maintaining a healthy level of gravel parking lots around its downtown real estate, the Ilitch organization reaps praise for simply doing business in a city when no one would. They’ve kept their sports teams in town, while other owners have fled for whatever city offers the most lucrative deal for new stadiums, such as the Atlanta Braves' recent decision to move from the inner city to the suburbs, leaving behind a stadium that opened in 1996.
But billionaires don’t become billionaires by chance.
Perhaps Detroit is the best town to do business in. The Ilitches have proved themselves shrewd business people, who, at Detroit’s lowest low, managed to shake loose hundreds of millions of dollars that will, in part, increase their organization’s net worth. (In 1998, according to Forbes, prior to Comerica Park’s construction, Mike Ilitch’s net worth was $630 million. By 2013, he and wife Marian’s net worth was $3.2 billion.)
And the couple has gotten better at getting the job done. The swift passage of a new Red Wings arena is, to some extent, the culmination of the pizza moguls capitalizing on that goodwill they’ve generated in a city that has a history of accepting big-ticket developments with lukewarm terms.
Orr said about as much on Detroit’s need for anything right now. He told CNN last summer about the project and its critics: “I know there’s a lot of emotional concern about should we be spending the money … But frankly that’s part of the economic development. We need jobs. If it is as productive as it’s supposed to be, that’s going to be a boon to the city.”
But Ilitch didn’t suddenly burst onto the scene clamoring for the public funds that will be used to construct the new arena. (It bears mentioning that public subsidies for sports stadiums have been standard for decades.)
The Detroit native has long wanted to build a new Red Wings arena; it’s possible he has from the moment he inherited the Joe after purchasing the hockey team in 1982 from former owner Bruce Norris for an estimated $8 million. It's been one of the worst-kept secrets in the city.
By the earliest reported accounts, Ilitch’s intention to move the Red Wings to a new location surfaced a decade after he became owner.
“Detroit Red Wings owner Mike Ilitch wants to build a new hockey arena downtown near the Fox Theatre,” The Detroit News reported in a Feb. 19, 1992, front-page story. Then-Wayne County Executive Ed McNamara told the newspaper a 27,000-seat arena would cost an estimated $75 million.
One of Ilitch’s chief concerns, the county exec reportedly said, was to not let Joe Louis Arena fall into disuse.
But before that dream could come to fruition, Ilitch had other matters to attend to, such as how to sell the public on what would later become Comerica Park. He purchased the Tigers in the summer of 1992 and had to decide if he’d build a new stadium for the team, something city officials had been itching to do for years. At the time, a poll conducted by the Detroit Free Press found 68 percent of respondents were opposed to the idea of raising taxes to finance a stadium.
Initially, Ilitch poured money into improvements at Tiger Stadium. But two years after purchasing the team, he announced the Tigers would vacate the ballpark located at the corner of Michigan and Trumbull, the team’s home since 1912.
The plan offered by Ilitch, an entertainment district called Foxtown, anchored by a new ballpark and the Fox Theatre, captured the minds of Detroit officials yearning for new business within city limits. But there was one hitch in the plan: Ilitch — whose Little Caesars empire was reportedly generating $2.2 billion in annual revenue — wanted public financing to supplement the costs.
The way a Detroit Monthly profile from June 1994 put it, the public was frustrated by the fact the Ilitch family even considered pitching such an idea.
“Frustrated, especially by Mike Ilitch’s silent spring,” the magazine wrote. “Why has he been so scarce during the lobbying fray over state help to finance Foxtown? … How could a family so revered for rescuing Detroit icons such as the Tigers and the magnificent Fox Theatre become so controversial? Are they that bad at PR?”
The answer, it seems, is sort of. The campaign for a new ballpark didn’t gather any steam until two long years later. A heavily publicized ballot referendum came before Wayne County voters, asking to approve $85 million in public financing for the stadium, paid through a 2 percent rental car tax and a 1 percent hotel room tax. The plan faced heavy opposition from a group of activists gunning to preserve Tiger Stadium, who challenged the usage of state and city funds being used for the project.
Stadium supporters and the Ilitches batted away critics with their checkbooks.
Eventually, voters overwhelmingly agreed to tax themselves in the name of baseball. It took a drawn-out PR campaign, but the Ilitches eventually got their way: Comerica would break ground in 1997 and open in time for the 2000 season. The Tigers would pay a major financial commitment to support the estimated $320 million cost of the stadium, borrowing about $145 million from a consortium of banks. The public, when all’s said and done, will foot a roughly $175 million bill.
Meanwhile, Ilitch beefed up speculation that he was studying the possibility of building a new Red Wings arena. The organization had been scooping up land surrounding the Fox Theatre for years. Besides that, as part of the deal for Comerica, Ilitch could purchase land west of Woodward Avenue that Wayne County obtained through condemnation proceedings.
To some downtown landowners, it was a no-brainer what the organization’s endgame was.
“We believe the plan is to use area west of Woodward as the site for a new hockey arena,” landowner Blair McGowan told Metro Times in 1997 for a story about the Comerica Park deal.
The Ilitch organization has offered a number of proposals to revitalize downtown. But some were just that: ideas.
A $6 million proposal in 1996 to construct an entertainment district anchored by Comerica Park came and went without any action. In 2000, about six months after Comerica Park opened, Ilitch announced a second plan, a $15 million entertainment district to be constructed near the Fox Theatre. Again, nothing happened.
Some businesses popped up after Comerica opened, but nothing significant and far-reaching. The vacant land in and around nearby Brush Park, a historic district that had been visibly affected by the decades-long disinvestment in Detroit, is evidence of that.
Eventually, others started to fill the void. By the middle of the 2000s, Park Avenue behind the Fox grew a life of its own — between the Town Pump Tavern, Cliff Bell’s, Bucharest Grill, and the Park Bar, the entertainment district took off — just not on Ilitch’s watch.
But north of I-75, a stone’s throw away, things haven’t gone as well. The area is marred by blighted buildings, liquor stores, and gravel parking lots only used on game days and special events.
Sean Harrington, owner of the Town Pump Tavern, describes the site of the proposed hockey arena as a vacant landscape. To the project’s critics, he asks, “Do you feel we’re all better off having tumbleweeds over there?”
If you doubt the veracity of Harrington’s claim, an appropriately ominous phrase — ZOMBIELAND — that’s spray-painted across the top of an abandoned hotel provides a general sentiment some feel when traveling through the neighborhood.
That’s why Harrington is ecstatic about Ilitch’s proposal to build a new arena and possibly raze vacant buildings, giving the neighborhood a fresh start.
“I’m completely supportive of the deal,” Harrington says. When Comerica Park was built, he says the Town Pump received a new clientele, shedding its previous dynamic as a “neighborhood bar for people without a neighborhood bar.”
“So,” he says of the bump in business during downtown events, “once they built one stadium I was like, ‘Fine, build four more.’” The area behind the Fox and Harrington’s establishment is also engulfed by a sea of gravel and cement parking lots, established to accommodate incoming traffic. For some time, it was considered the likely location of a new Red Wings arena.
“The only real complaint I have about the Ilitches, in general,” Harrington says, “is that they [moved] so slowly.”
Before the Ilitches reached the point of proposing to dramatically transform a swath of land near downtown, the organization would have to settle terms over Joe Louis Arena.
In 2009, when the lease for Joe Louis Arena between Ilitch and the city was set to expire, the wheels were turning again: Would the family keep the Red Wings in Detroit? Would they build a new arena?
By all means, a year later, the cat was out of the bag. The Ilitch organization was “definitely committed” to building a new arena in Detroit, a rep told the media. Except, this time, there was no need for a fierce public battle similar to the one that played out over Comerica Park.
In particular, it now seemed all the Ilitches needed to do was present themselves as a sound “partner” for taxpayers, a name the Detroit Economic Growth Corporation, a quasi-public entity that oversees economic initiatives in Detroit, would affectionately call Olympia Development as firmer plans for a new hockey arena were made known.
Except, by late 2011, Detroit’s financial stability had become sclerotic. Then-Mayor Dave Bing was suggesting that a state-appointed emergency manager (“EM”) with sweeping powers might be needed to restore some fiscal order. State officials were pushing for Detroit to sign a consent agreement in order to stave off the appointment of a politically unpalatable EM. If things failed to improve, the state could appoint an EM regardless, that is, if it felt city officials weren’t holding up their end of the bargain. The unelected bureaucrat would have the authority to, say, unilaterally usher through a complex proposal to fund a new arena on the city’s behalf. In some instances, it would have required the state’s emergency loan board to execute certain provisions — an entity made up entirely of Gov. Rick Snyder's appointees.
It doesn’t take someone with a serious amount of political acumen to see the time was conveniently ripe for the Ilitch organization to make its move.
But how could the Ilitches manage to produce a viable financial structure to support the construction of a new arena in a city with a bottomed-out credit rating? It would have to turn to the state for support.
First, the Ilitches linked up with Detroit’s Downtown Development Authority and the Detroit Economic Growth Corporation, which also happens to staff the DDA.
As early as the beginning of 2012, the DDA reached out to State Rep. John Walsh (R-Livonia) and held initial discussions about Ilitch’s significant proposal, the lawmaker tells Metro Times. The deal would contain a massive entertainment district, including a new hockey arena and an adjacent development in a 45-block area encompassing the lower Cass Corridor.
Says Walsh: “Folks from the City of Detroit ... came forward and said that the Ilitch family had ... an idea to build a 35-acre development — it’s not just the stadium.” The discussions, he says, “started to heat up” in the spring of 2012.
At the same time, the DDA and DEGC separately petitioned Walsh to sponsor a bill (HB 5463 of 2012) that would exempt property owned by the development authority from property taxes, according to court filings. (The DDA disputed the city’s tax assessments dating back to 2010, which was before the Michigan Tax Tribunal. Walsh’s bill would render those disputes moot, meaning they would owe no property taxes — past or future.)
Walsh introduced the bill, which passed the state House in May 2012. Months later, it would later serve as the vehicle to facilitate the public funding of the arena.
“All of that was backdoor dealings,” says state Rep. Rashida Tlaib (D-Detroit), a critic of the deal who ultimately voted against the bill. “Every single thing that happened here in the legislature, as well as on the city level, all of that was agreed upon without consulting the community. Even if they had meetings with us, it was already green light, move forward. Even if the City Council says no, [they could] get the [emergency manager] to do it.”
Tlaib’s assertions, to an extent, bear some truth. The process to pass the arena project in Lansing was, at times, convoluted, long-winded and required some serious political maneuvering. Although the financial structure of the deal is splendidly complex, it’s worth highlighting the lead-up to the bill’s passage in Lansing during what was a hectic week.
In May 2012, a Sports Business Journal report surfaced saying an architect had been hired to design a new Red Wings arena. It’s around that time that discussions to amend the state’s DDA act to facilitate the construction of a new hockey arena commenced. During the following months, state officials and lobbyists working for Ilitch began corresponding to hash out the structure of a viable deal for the new arena.
The idea, according to emails obtained in a Freedom of Information Act request, appeared to be this: Have the state issue bonds to cover construction costs, and then secure some annual revenue to pay the tab off.
Mark Morante, senior vice president of program management at the Michigan Economic Development Corporation (MEDC), one of the state’s lead negotiators in the project, spoke about the changes with the state Treasury in August.
“I haven’t looked at the DDA Act in a long time to see if 5463 could be amended to do all that we’d need,” Morante wrote in an email, dated August 27, 2012, to Thomas Saxton, deputy state treasurer.
That same week, lawyers from Miller Canfield, counsel for the Ilitch organization, emailed Morante and other officials a substitution to HB 5463 that, in its final form, would allow the DDA to continue capturing state school taxes within its district to supplement the arena’s cost.
Politics is a difficult game to play, though.
According to court filings at the Michigan Tax Tribunal, by Oct. 30, the city and DDA stated it was their belief the Senate wouldn’t take up HB 5463 before year's end due to “political concerns.” It’s unclear what those concerns were, but it likely points to the ongoing push by Republican lawmakers to pass right-to-work legislation. That action depended on the outcome of a voter referendum to enshrine collective bargaining rights in the Michigan constitution during the general election the following week.
The general election happened Nov. 6, 2012, and the collective-bargaining proposal failed.
Coincidence or not, the outlook for HB 5463 changed fast.
A day later, the city and DDA were informed that a committee hearing for HB 5463 would be set in the state Senate within the coming weeks, according to court filings.
Walsh tells Metro Times that project-backers approached him around this time to consider using HB 5463 as the means to facilitate the public funding mechanism of Ilitch’s new arena.
“In the legislature, we can introduce bills with narrow focus,” he says. “You don’t have the ability to have a bill on the DDA, and then add in something that deals with breastfeeding. But what occurred was, when the DDA came forward, and the City of Detroit came forward and said, ‘We know you have a bill (HB 5463) and our amendments affect the same section’ … that’s why we decided to use my bill … it all made sense. It’s all related to the DDA.”
It wasn’t until the end of November that the substitute to HB 5463 appeared ready to go. Officials were already discussing the structure of the deal for the arena district, dubbed “Project Puck.”
“After discussions with the Governor, we should plan on capturing the entire $12.8 million that the DDA has been assuming for the project,” Dennis Muchmore, Gov. Snyder’s chief of staff, wrote in an email that day to Saxton and then-State Treasurer Andy Dillon.
A day later, state officials confirmed that HB 5463 would be taken up in a Senate committee the following week.
“The fun will be starting Tuesday (Dec. 4),” Morante wrote in a Dec. 1 email to colleagues at the Michigan Economic Development Corporation.
When Dec. 4 arrived, Ilitch finally made his vision public.
The Red Wings owner announced a proposed $650 million so-called “catalyst development project.” It would include a new hockey arena with additional spinoff development near downtown. A spokeswoman for Ilitch later told media outlets at the time that it was the first step “to explore the viability” of such a district.
No location, nor specs of the arena, nor intimate details of the project’s funding were given. A press release at the time said it would incorporate a “significant private investment supplemented by existing dollars currently collected by the DDA.”
By amending the bill to include language to fund a “catalyst development project” — specifically geared for the Ilitch proposal — Walsh says it would “allow the DDA to determine whether or not it wished to use those funds for the purposes of the stadium and related project.”
The opportunity was ripe, Walsh says, because the Detroit DDA had recently retired debt that had been paid off through taxes earmarked for the state School Aid Fund. Under state law, the authority could capture those taxes within its defined district, an estimated $12.8 million annually, which Michigan reimburses the affected schools for whatever’s lost.
Still, lawmakers were immediately hesitant about the bill, as a nonpartisan Senate Fiscal Analysis later explained it would require an “increase to prevent reductions in the per-pupil foundation allowance.”
Morante, of the MEDC, says the state guarantees each school district will receive a per-pupil foundation, regardless of what’s in the state School Aid Fund. If, in a worst case scenario, the “School Aid Fund isn’t sufficient to give that [per-pupil] allowance, there would need to be an appropriation” from the state legislature “for that amount.”
Walsh says that’s a remote chance and shouldn’t be a problem. The roughly $13 million in those taxes have been captured for decades: therefore, it wouldn’t affect the state school taxes any more than it had previously.
But if HB 5463 wasn’t passed, that $13 million in taxes would’ve been sent to the state and then deposited in Michigan’s School Aid Fund, Morante explains.
This clearly rankled the feathers of numerous lawmakers, as the state has dozens of districts facing budget deficits right now. Someone, it seemed, would be getting the short end of the stick.
At the Capitol Dec. 4, the frenetic pace of the 2012 Michigan legislature’s lame-duck session continued in tandem with the Ilitch announcement.
The Senate Government Operations Committee convened around 1:30 p.m. According to meeting minutes, after Walsh summarized HB 5463 — which, at that point, still lacked the arena language — the committee heard supportive testimony from representatives of Ilitch Holdings Inc., the DEGC, and Ilitch’s Olympia Entertainment, who outlined the project for lawmakers, according to published reports. Gov. Rick Snyder’s office and the Michigan Municipal League were noted for the record as being in support of the bill.
Before the vote, Senate Majority Leader Randy Richardville, who also serves as chairman of the government operations committee, offered the substitution to HB 5463 to make the Ilitch proposal work. Moments later, the committee unanimously passed the bill 5-0 with bipartisan support.
Just 35 minutes after the committee convened, Richardville adjourned the meeting and the bill was sent to the full Senate for consideration. Lawmakers on the committee spent as much time as it takes for a Domino’s pizza to be delivered to consider a project of that magnitude.
Rep. Walsh described the Ilitch organization’s efforts to educate lawmakers of the project as a “slow burn.”
“[Ilitch’s team] took their time,” he says, “It was never a rushed project … the city, the DDA, and the Ilitches — they spent a long time making sure people understood what they were getting into and what they were asking others to get into.”
Other lawmakers who spoke with Metro Times offered a different take, describing a bill that was proposed with limited knowledge available on what exactly they were being asked to vote on.
Senate Minority Leader Gretchen Whitmer (D-East Lansing) initially voted in support of the bill at the committee hearing. The following day, though, when it hit the full Senate for consideration, she says she had time to digest the implications.
“We really got a much better picture of what the impact was going to [be] with regards to the cost of the schools,” Whitmer says of the estimated $13 million in school taxes annually earmarked for the arena project.
State Sen. Pat Colbeck (R-Canton), who voted against the bill, tells Metro Times “there frankly wasn’t a lot of discussion on this bill at all.”
“Let’s put it this way," he says, "we’ve had hours and hours and hours of discussion on feral swine. When it comes to [the arena legislation], no, there wasn’t much discussion at all.”
The bill passed the Senate and was sent to the House for reconsideration. This time it received a wildly different outcome than the vote on Walsh’s original legislation.
Calling it a “tax loophole,” state Rep. Tlaib told her colleagues before the vote, “I think that [the project] lacks the thorough process that it needs to go through … By the way, Detroit is broke. It’s completely broke. I mean, let’s just be honest, it’s broke, and this is a company that actually owes money to the city of Detroit even though you’ve been told otherwise,” referring to reports in the Detroit Free Press that the Ilitch organization actually owed the city back taxes.
That dispute was eventually settled. The bill passed the House in a 58-49 vote. Two weeks later, Gov. Snyder would sign it into law. It would be another seven months before actual plans for the project would be unveiled.
After intense speculation, last March, the state appointed Kevyn Orr, a corporate lawyer from Washington D.C., as emergency manager of Detroit to oversee its day-to-day finances. He repeatedly said it was his desire to keep Detroit out of bankruptcy court. But in July, Orr eventually succumbed to the city’s woes and filed a petition for the largest bankruptcy in the nation’s history.
Six days later, the optics of the deal for a new Red Wings arena appeared far worse when a state agency would give preliminary approval to issue $450 million in tax-exempt bonds to finance the cost of the arena’s construction.
At that point, details of what Ilitch planned had been circulating for weeks. In June, the DDA laid out initial terms in a non-binding memorandum of understanding about the 18,000-seat arena that would be situated in an area bounded by I-75, and Woodward, Cass, and Temple avenues. Detroit City Council would be required to expand the DDA’s boundaries to accommodate the new arena district, transfer city-owned land to the DDA where the arena sits, and approve that deal to settle outstanding liabilities surrounding Joe Louis Arena.
As it would turn out, the deal hatched at the state legislature provided even sweeter financial terms for the Ilitch organization compared to the previous agreement for Comerica Park.
More than $260 million, roughly 58 percent of the arena’s construction cost, will be financed through public tax dollars. Public funds for Comerica Park amounted to roughly $175 million, roughly 55 percent of the stadium’s cost.
That’s an issue even Gov. Snyder, a staunch supporter of the deal, seemed iffy on earlier this year: “As an old accountant I’m always somewhat challenged on projects like that,” Snyder said in response to a question in March while speaking before the Manhattan Institute, a conservative think tank. “And if it was just a project like that (a publicly funded arena), I would probably have even more skepticism. But this is a wonderful project, particularly because of where it’s located — I think that’s where it adds tremendous value.”
But how is it a bankrupt city could afford to subsidize the costs of a sport stadium? The city’s DDA, a separate legal entity of Detroit, assures everyone of this: The project uses no city general fund dollars.
The Michigan Strategic Fund, an economic agency of the Michigan Economic Development Corporation, will issue the sale of up to $450 million in 30-year tax-exempt bonds to finance the arena’s construction.
Morante, of the MEDC, tells Metro Times the limited-obligation bonds would not be backed by the full faith and credit of the city of Detroit. “The DDA’s obligations are limited to the tax capture and to the revenue pledges, and that’s it,” he says.
Those bonds would be secured through three revenue streams through the use of tax-increment financing, a redevelopment tool the DDA uses by capturing the increased value of properties in its district.
The DDA assesses a 1-mill property tax (a unit of property tax assessment equal to $1 per $1,000 of taxable value) for property owners within its defined district to fund operations, and then uses captured tax increment funds — that is, the increase in property taxes that stem from a new investment — on specific developments. The idea behind tax-increment financing is this: As property values increase in the area — in this instance, because of the new arena — the spike in property taxes will be poured back into DDA development.
“We obviously wanted more,” Brian Holdwick, the vice president of the DEGC and lead negotiator in the deal for the city, told the Detroit Free Press in March. Holdwick deferred requests from Metro Times for comment to the agency’s spokesperson. “Given the amount of money that the city’s put into this — which is zero — it’s a great deal for the city and its residents.” (See sidebar.)
But when the DDA’s footprint to accompany the new arena was expanded, the city of Detroit effectively lost property tax revenue that instead will be diverted to the authority’s district. That capture of incremental revenue, about $64.5 million spread over 30 years, will be used to pay off the $450 million in bonds.
“If in fact somebody came in and decided to develop that area without incentives … the city would capture that increase in that circumstance,” says DDA spokesman Bob Rossbach, adding that was a remote possibility.
Detroit’s downtown and Midtown districts are bursting at the seams with economic activity. New investments have been announced all around the catalyst development’s footprint, generally bounded by Charlotte Street to the north, Grand River to the west, Grand Circus Park to the south and Woodward to the east. At this point, it’s possible that the fallow land where the arena will sit may have attracted the interest of prospective developers with diverse backgrounds in future years.
Perhaps individual investors would come along, says John Mogk, a law professor at Wayne State University. But, he says, the development happening in the area is “modest, and almost none is occurring without a public subsidy of some kind.”
“While property taxes on the increase in value of land within a tax increment financing district are [channeled] back into the district, income taxes from jobs created in the district and the increase in property taxes on property adjacent to the district flow into the City’s general fund,” he writes in an email to Metro Times. “If the Ilitch group aggressively develops the property, the City should net out better than if the land were left to be developed by individual investors over an extended period of time and not as part of a cohesive development scheme.”
So who benefits the most here? It depends on who you ask.
Downtown Detroit will gain a substantial investment in the new arena — but that spike in property values (that would’ve otherwise flowed into Detroit’s general fund) goes to the DDA’s coffers.
And all of that proposed spin-off development? Those property taxes will be diverted to the DDA too.
Nevertheless, says DDA spokesman Rossbach, the city of Detroit stands to gain 440 new jobs at the arena, on top of the potential new jobs created at adjacent businesses in the district that are built — and the income taxes generated from those jobs. (See “$200 million of spinoff development not a given.”)
According to city records, between the expected 5,500 short-term construction jobs and the new arena jobs, the city will generate an estimated $15.8 million in new income tax revenue for the city — over 30 years.
Those numbers were calculated using statistics from the U.S. Bureau of Labor Statistics, which produces annual estimates of average construction job wages, explains Mark Rosentraub, an economist and professor of sports management at the University of Michigan-Ann Arbor.
Rosentraub conducted an analysis for the Ilitches on their project, generating estimated economic impact, jobs, and income taxes for the city. He says figures for the permanent arena jobs — a mix of part- and full-time positions — stemmed from average wages in the hospitality sector, according to the U.S. Bureau of Labor Statistics. Then, by comparing the arena to the performance of similar facilities in a similar market to Detroit’s, he says he arrived at the expected income taxes and potential economic impact for the city and region. For $260 million, the public will have created 440 jobs.
As researchers and academics who have studied such deals have noted, though, mixed-use developments tied to arenas don’t tend to have solid track records. And should Olympia Development of Michigan, Ilitch’s real estate arm, balk on the requirement to cause $200 million of spinoff development within five years of the first event at the new arena, there’s little to no liability.
If the threshold for spinoff investment lands in the district within that time frame, likely by 2021, Olympia would be credited with $62 million for the adjacent development surrounding the arena, according to city records. If Olympia defaults on that commitment, it would lose out on that credit, city records show.
Basically, Olympia will lose an incentive worth millions of dollars if they don’t meet the threshold for the proposed ancillary development. Defaulting on the stipulation, in essence, costs them nothing.
Regardless, the new arena will still be built.
That’s why the spinoff development shouldn’t have been the dealmaker that gave the city the impetus to pursue the Ilitches' proposal, says Robert Baade, an economics professor at Lake Forest College in Chicago.
Economic studies have hammered this point away for years, he says: Purported economic benefits from subsidizing an arena with public dollars offers have continually failed to materialize.
“And I think that common sense informs on that one, as well,” Baade says “When you talk about an arena … [and] if you think about the economic impact from Detroit’s point of view, we’re simply changing the locus of play, and the locus of … some spending. So, the idea that this, somehow, is going to add something significant to metropolitan Detroit’s economy, I think, defies common sense.”
With arenas, he says, they’re more and more “becoming like walled cities,” offering everything a fan could need within the confines of the facility. Baade says you “don’t have the spilling out of consumers into the arena’s environment streets to the game to induce a spike in the local economy on game day.
“None of this really makes sense, and the statistical analysis bears this out,” he adds. “You’d be hard pressed to show me an example where a team has simply relocated within a metropolitan area that somehow that metropolitan area is being made more well off.” What he means is this: Does Detroit truly benefit from moving a professional hockey team to a new facility up the road from the one it’s abandoning?
Olympia has previously told Metro Times it’s studying mixed-use developments surrounding arenas, but the company says they’re still in the planning stages.
The DDA would own the arena and lease it to Olympia for 35 years, with the option to execute 12 five-year extensions for a total of 95 years. According to city records, the Ilitch organization expects the life expectancy of the arena to be half that number, 48.5 years.
Under the Joe Louis Arena lease, Olympia pays $1 million annually for rent. At the new arena, the company will operate the facility rent-free.
Besides the $13 million annually in school taxes the state legislature greenlighted for use in December 2012, the DDA will also use a separate $2.5 million annual tax capture to secure the $450 million in bonds. The Ilitch organization would pay the DDA $11.5 million annually in revenue from the arena to retire the bonds. Any cost overruns in the arena’s construction would be covered by Olympia.
But unlike the previous deal for Joe Louis, the Ilitches will keep all the revenues generated at the arena.
The city previously received a 10 percent share of ticket surcharges, 7 percent of suite sales, a 10 percent surcharge on concessions, and 5 percent on souvenir sales, generating anywhere from $2 million to $3 million annually.
Concerns that the city may have given too much with not enough in return from residents and public officials were amplified at a Detroit City Council meeting in February. It was the most contentious part of the year-long negotiations for the new arena. Ilitch employees were reportedly shuttled in to show their support for the deal.
The main item of the meeting: Councilmembers were being asked to approve a controversial land-transfer swap of 39 parcels located in the arena’s footprint to the DDA at the cost of $1. The land, of note, was valued at nearly $3 million. Comparatively, as city records released prior to the meeting show, the Ilitch organization had paid nearly $50 million to private landowners within the arena district.
The vote was supposed to take place in December, but the council felt it was prudent to delay the land transfer until new councilmembers were seated the following month. Under the state’s emergency manager law Detroit City Council has limited authority; so, a delay, the thinking went, was how councilmembers could gain leverage in the policymaking surrounding the deal.
But if that was the point — to meditate on what Olympia Development CEO Tom Wilson called a “once-in-a-generation” deal — some left City Hall puzzled after the council approved the transfer.
Red Wings General Manager Ken Holland told the council that the team needed a “competitive” arena in order to recruit the best talent.
“It’s important that we have a competitive facility in order to compete in the National Hockey League,” Holland told councilmembers at the hearing.
John Telford, a native Detroiter and former interim superintendent of Detroit Public Schools, wasn’t having it. He told council that, although he supports the plan, “I don’t want you to give away that land.”
“Let Mr. Ilitch purchase the land for a fair price — he’s a billionaire — and build his stadium,” Telford says.
Jerry Belanger, owner of the Park Bar, took issue with the public financing being used by Ilitch, again.
“He can’t go toe-to-toe with me on a fair playing field,” Belanger says, “because he can’t win without public money.”
Within a few hours, the council approved the land transfer in a narrow 5-4 vote. The land would be transferred to the DDA for $1. Additional land in the arena district would eventually be transferred to the authority related to the adjacent development. But, more or less, the new arena was in full swing.
The following month, when council would consider the updated lease for Joe Louis Arena, as well as the plan to raze the structure bearing the name of one of the city’s most prominent sports figures, there was little left for councilmembers to argue. In particular, one would like to have seen a non-compete clause barring the city from using the Joe removed.
Councilwoman Raquel Castaneda-Lopez asked if this was possible, given the looming deadline?
City officials and Ilitch personnel gave a simple response: No. There was no time left for debate.
The Joe will be demolished using state bonds, the city will reimburse the state for the costs, and Detroit cannot use the facility that it owned outright when the Red Wings move to their new home.
“It’s always been my dream to once again see a vibrant downtown Detroit. From the time we bought the Fox Theatre, I could envision a downtown where the streets were bustling and people were energized. It’s been a slow process at times, but we’re getting there now and a lot of great people are coming together to make it happen. It’s going to happen and I want to keep us moving toward that vision.”
That's the only statement Mike Ilitch has made to local media in the 17 months since the state legislature let the first domino fall in approving the arena’s public financing mechanism. Really, that’s all he needed to say.
When the first puck drops at the first Red Wings game inside the new arena in late 2016, officials expect, downtown will be hopping with activity, the culmination of a decades-long effort to construct such a sports district. Fans may be able to grab a bite to eat in Midtown and take the M1 streetcar line to the game. A stop for the 3-mile transit line had been, conveniently, planned at the corner of Sibley and Woodward avenues.
It will be the grand finale to a plan Mike Ilitch first set out to implement nearly a quarter-century prior. Hopefully, as officials predict, the city will be on solid footing after what’s expected to be a quick exit from bankruptcy this fall.
With the new arena, plenty of people are bursting with anticipation. People like Wayne Alexander.
“Take it from me, I grew up in this neighborhood here,” says Alexander, who owns the Comet Bar, a dive that sits square in the middle of the footprint for the proposed new Red Wings arena. The 68-year-old remembers the good times, living in a thriving community of the city. He went to school down the street from this hole-in-the-wall he inherited for next-to-nothing back in 2008. His marriage ceremony happened right around the corner.
“I’ve seen all the ups and downs,” he says. By the 1970s, the neighborhood that taught him how to live began a meteoric fall. “I seen everyone moving out because of the hookers” that started staking out real estate nearby. Four decades later, only his bar, a few residential buildings, a liquor store and a half-dozen businesses remain.
This is why Alexander is ecstatic about Ilitch’s proposal to build a new arena and possibly raze the vacant buildings, giving it a fresh start.
The fate of his watering hole is, for now, unclear. As part of a deal with Ilitch organization, the Comet bar’s site was reportedly sold for $7.8 million along with the nearby Greater Detroit Cab land and other nearby sites. The cab company owned the land. Nonetheless, he has high hopes for the project.
“I think it’s great for this area,” he says. “I think it’s the best thing that could happen to this city because it’ll get rid of all this blight around here … If they come through here, they’re gonna knock down 45 damn blocks of that shit, and it’s gonna get rid of all [these] old eyesores in this area, and just bring nothing but prosperity to this neighborhood.”
He’s hopeful the vast swath of land now under the purview of the Ilitch organization will have better days ahead. But if the company doesn’t follow through with plans to cause an estimated $200 million in private investment adjacent to the arena, it’d just be more bad news.
“If they don’t, this blight’ll be here forever, and you know it,” he says. “We all know it.”
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