News Hits: Schuette OKs school taxes for new Red Wings arena

Last week was seen as a big deal for Detroit: For one thing, the city officially emerged from municipal bankruptcy, ending an 18-month bout of financial wrangling with itself.

On the same day, the owners of Little Caesars, Mike and Marian Ilitch, announced they would construct a new eight-story headquarters for the pizza empire in downtown next to their Fox Theatre. The Ilitch organization said they would be only the seventh corporate headquarters to locate in Detroit since 1950.

It was an announcement meant to tie in with a new $450 million arena for the Ilitches' Detroit Red Wings to be constructed a block away. Both are expected to open around the same time in 2016-2017.

That wasn’t the only arena-related news last week.

Michigan Attorney General Bill Schuette quietly issued an opinion that said state taxes for schools can legally be used to fund the arena’s construction. The opinion came in response to a request in October from state Rep. Rose Mary Robinson (D-Detroit), who asked if it was a constitutional use of the funds.

In her request, Robinson pointed to a section of the Michigan Constitution, which says that money from the state School Aid Fund is to be used “exclusively” for public schools and colleges in Michigan.

Some quick background: Robinson’s request stems from the structure of how the Red Wings arena will be financed. An estimated 58 percent of the cost to construct the arena will funded by public tax dollars, about $261 million.

The state is borrowing $450 million up front to support the arena’s construction. Robinson’s chief concern was that the Detroit Downtown Development Authority (DDA), which will own the arena, will use an estimated $15 million annually in state school taxes to repay Michigan.

That will happen because, in 2012, the Michigan legislature passed legislation that allowed the DDA to divert taxes that would’ve otherwise been deposited into the state School Aid Fund, which provides financial support for K-12 public school systems in Michigan.

At the time, legislators supporting the move said the decision would only allow the DDA to continue capturing taxes to support economic development, just as it has since the 1990s.

But state officials previously told MT that, if the legislature never passed the bill, the estimated $15 million annually would’ve been deposited again into the state School Aid Fund. (The state has said it repays schools for any lost revenue, but that $15 million had to come from somewhere, though it's unclear where.)

In his opinion released last week, Schuette said Michigan’s DDA Act historically shows that school taxes can be captured under “certain circumstances.” In the case of Detroit, school taxes are captured by the DDA before they’re deposited into the School Aid Fund. So, Schuette wrote, that means “those captured school taxes were never dedicated to the School Aid Fund.”

Robinson, as expected, wasn’t pleased. She told MLive's Emily Lawler, “Our first asset is our children, our priority is our children.”

When state lawmakers debated whether to appropriate public funds for the project, some Republican legislators argued that $15 million was a pittance sum. If it was money to be used for grand economic development, they claimed, then it was worth diverting the taxes. (The Ilitches say the new arena will create 400 part- and full-time jobs, and the city will receive about $16 million in total income tax revenue.)

Whether you agree that public tax dollars should be used for the project, or decry the idea of subsidizing a billionaire’s arena, the fact is that schools in Michigan could use all the help they can get. Even if it is only an additional $15 million.

For example, this past May, Michigan officials lowered revenue projections for state school taxes over the next year by nearly $80 million. This was seen as a big deal when the revised projections were released. And if facets of a recent state House plan to support road funding — by phasing out the sales tax on gasoline and replace it with an increase to fuel taxes — gains traction when lawmakers hash out a compromise this week, that could cost deplete school taxes of “hundreds of millions of dollars,” according to one study.

And while Robinson hasn’t said this outright, her point speaks to a larger concern about the current revitalization in downtown Detroit: No one questions the fact that it’s a positive sign to see young millennials moving into the city. But what will those transplants do when they have children later in life and want to send them to school — in Detroit?

"I represent Detroit, and I represent the center of Detroit, the core,” Robinson told MLive. “And our priorities are our children, schools, police protection, basic essential city services. Give us that. Take your arena ... it's just not fair." (The DDA also for decades has captured tax dollars for economic development that otherwise would’ve flown into Detroit’s general fund, which pays for police and fire services.)

The point is this: That $15 million per year would’ve been something. Since the arena’s projected lifespan is expected to last only 48 years, perhaps that’ll be taken into consideration the next time a new one is pitched.

Update Fri. Dec. 19, 2:45 p.m.: This story has been updated since its original post.

Ryan Felton

Ryan Felton was born in 1990 and spent the majority of his childhood growing up in Livonia. In 2009, after a short stint at Eastern Michigan University, he moved to Detroit where he has remained ever since. After graduating from Wayne State University’s journalism program, he went on to work as a staff writer...
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