Michigan senate OKs use of $13m a year in tax dollars for Red Wings arena

Those long-amorphous plans for a new Detroit Red Wings arena suddenly got a whole lot more morphous yesterday, as the Michigan state senate voted to approve the use of tax dollars by the Downtown Development Authority toward any arena plan. Namely, the one that Red Wings owner Mike Ilitch announced on Tuesday, which would cost $650 million and include a mixed-use retail/housing/office development, and would be built, er, somewhere and be paid for somehow.

Ilitch and his senate allies have been playing up the “no new taxes” aspect of the DDA scheme, but of course old taxes are tax money too. The DDA funds are basically a TIF — they come from redirected property taxes in downtown that would otherwise go to city schools. This was a matter of some consternation yesterday to Senate Minority Leader Gretchen Whitmer, who complained, “For the first time in nearly two decades, the property taxes in Detroit were finally going to the right place, the schools. Now they’re swooping in on school taxes to help pay for a hockey arena in Detroit.”

Actually, from what I can tell, the DDA has already been using the money — currently running about $12.8 million a year, or enough to pay off about $150 million worth of arena — to pay off prior school debt, but now that that’s almost retired, apparently Ilitch figures the cash would make a nice down payment on his arena dream. The senate action doesn’t necessarily mean he’ll get it — the state house still has to vote on it, and then the DDA needs to work out an actual arena deal — but it’s certainly a great first step. Or a lousy first step, depending on your perspective.

22 comments on “Michigan senate OKs use of $13m a year in tax dollars for Red Wings arena

  1. Well, this makes sense. It’s not like the state of Michigan really suffered during the recession. And the Red Wings have never had the kind of success that would allow them to forgo corporate welfare.

  2. Normally, I would agree with you that the money could be better spent. But, at least they will get something tangible with a new arena, something that can actually be seen. Giving the Detroit Public Schools $150 mil. is basically the same thing as setting $150 mil. on fire.

  3. Uh huh.

    And since there are no jobs for the kids that would otherwise actually be educated in Detroit area schools, why waste the money on actually “learning” them, right Mike?

    Neil, as I understand it, the Gen Obligation bonds were used for a variety of projects, not just schools (which I don’t think the one elected representative with any moral fibre and character actually made clear in her statement).

    But I’m willing to wager that they didn’t get used for projects that accrued massive profit to a billionaire. Just sayin’…

    BTW, anyone know where the Red Wings will move to if the deal doesn’t go through (sarcasm/off)? Atlanta is available, as is Hempstead…

  4. I spent way more time researching this this morning than I really should have, and all I could find was one article saying that the DDA money had been used to pay off “school debt.” I have to head out again for a few hours, but if anybody can dig up a DDA budget or summary of same, that’d be greatly appreciated.

  5. www.michigan.gov/documents/treasury/827525DetroitCityDDA20101216_341205_7.pdf

    A Semi-recent annual report for detroit… as clear as mud.

  6. Well John, it may not have been the nicest thing I’ve ever said. Would the Pistons get to join them in this new home?

  7. Fair enough, Mike!
    I don’t know very much about the Detroit school system, but I’m hoping it’s less corrupt than other aspects of the city/government. You may be right that “money” won’t fix what ails it, but any solution to the nation’s economic woes has to include producing more skilled and better educated high school graduates, especially in economically disadvantaged areas.

    As for the Pistons, I doubt they will move. The Davidsons built the Palace at Auburn Hills (which, if I remember rightly, was the first of the “new” generation of arenas to feature luxury suites and high revenue seating prioritized over seating for the great unwashed… me) to appeal to a new audience in what I believe is still very much considered a “gentrified” area.

    Hard to see them giving up on their own building (more or less) just to move back to the inner city. I recall there being some talk that the Wings might actually consider moving to Auburn Hills a few years ago, but it’s hard for me to believe that was ever a real possibility. The Wings are as tied to downtown Detroit as the Leafs are to downtown Toronto and the Rangers to MSG.

  8. I haven’t found anything relating to DDA budgets online Neil, sorry. Maybe this is much ado about nothing, but I’m leery of officials who claim that money was dedicated for a certain purpose but don’t offer any more info. Maybe the $12.8m was supposed to be earmarked for schools alone, but reading between the lines it seems like that cash could be used for whatever the DDA (or the city itself) deemed beneficial.

    If it is discretionary funding, then I’m still opposed to it being given to a billionaire to help run a (very profitable) hockey team, but perhaps there’s a bit less outrage involved if this isn’t money actually being taken from schools… of course, that isn’t to say it couldn’t be given to schools if the city found public education at all beneficial…

  9. “BTW, anyone know where the Red Wings will move to if the deal doesn’t go through (sarcasm/off)? Atlanta is available, as is Hempstead…”

    The flavor of the month is Virginia Beach. I remember going to a few games as a kid when the Red Wings’ AHL team was in Norfolk, so they’ve got that connection going for them.

    It all feels very similar to subsidizing the equally leverage-free Cubs or Red Sox. Where do these government officials learn their negotiating skills?

  10. John, since it’s property tax money, it would go to schools if it weren’t being siphoned off by the DDA. It does appear, though, that once the TIF was set up, the DDA can spend it on whatever it feels like. In fact, I’m not exactly sure why legislative action was required for this…

  11. I think that fiscal statement is saying that the DDA fund’s general revenue in 2010 was 25M in property taxes and 5M in other revenue (parking taxes at a DDA garage for example).

    I did see this Proposal A thing, which may have been an attempt at making DDA TIPs pay school property tax (typically 50% of local property taxes), at least from any new bonds/projects. www.educ.msu.edu/epfp/meet/01-26-04propa.htm

    In 1994, State of Michigan voters passed Proposal A, which affected school property tax revenue. As a result, Tax Increment Plans are only allowed to capture school tax revenue to the extent necessary to cover existing debt service, and the excess must be returned to the state.

  12. I agree, John. “The Palace” clearly was ahead of its time. Too lazy to google, but late 80s, I believe. Nobody goes anymore, I think is the bigger problem. But, I guess winning would solve that. Seemed to be a lot of people there during the Grant Hill, and Wallacehamiltonbigbenprincebillups era.

  13. Aha — if ChefJoe’s reading is correct, that could explain the need for the senate vote, since it’s hard to argue that a new arena is “existing debt service.”

  14. Keith:

    That’s a really good question. I can understand elected officials and civil servants being terrible negotiators. What I have never understood is why they believe they are competent to negotiate deals with private businesses that bring in highly skilled professional negotiators…

    When they need surgery, do they also operate on themselves?

  15. “What I have never understood is why they believe they are competent to negotiate deals with private businesses that bring in highly skilled professional negotiators…”

    Last night I read the “United States of Subsidies” series of articles in the New York Times (thanks to “MikeM” for mentioning it in another thread). The idea that the government side is overwhelmed by those requesting/demanding handouts is mentioned by several officials. So at least some in government understand the position they’re in.

    “Subsidies” is a lengthy, interesting, frustrating read. (Gotta love comments from knuckleheads like Rick Perry saying that this kind of “competition” is what the free market is all about. Sigh.) So. Much. Waste. Local governments wasting $billions that provide no benefit to the national economy and corporations wasting enormous amounts of time on extortion instead of devoting it to the real work of their business. Every bit as damaging to the national economy as if states had “import” taxes on the flow of goods between states. But I guess we can forget about Congress invoking the “commerce clause” to end it – too much influence by those who benefit. I used to think they were a stupid idea, but this kind of thing makes me think term limits may be the only solution.

  16. Good points, Keith.

    Off topic somewhat… but I’ve often looked at the damage that excessive usary or credit charges do to our economies. It leads me to wonder why it is that if the same “skim” was being siphoned off by gov’t taxation there would be a revolution over such regressive policy and the damage it does to the economy. But when 25% annual interest rates and predatory fees are imposed on consumers by ‘card companies’ no-one raises an eyebrow.

    If unreasonably high tax rates damage economies then so do high credit charges. It doesn’t matter if the government or a “money store” or organized crime does the skimming, it’s all a drag on the economy.

  17. The Palace is one of the oldest buildings in the league and it’s by far the furthest from it’s downtown center. The Palace sits 30 miles from the heart of downtown Detroit. For comparisons sake, the Warriors are the team that is the 2nd furthest from it’s center core and they are just 7.5 miles from downtown Oakland.

    The Red Wings play in the worst arena in the NHL. Both teams need to play in a brand new arena in Detroit.

    People say that the Palace would be wasted but that isn’t true. The building would still host tons of concerts and events. When the new arena would be booked, the Palace could host all the overflow. In fact, suburban arenas are perfect for family shows and concerts since the various acts only show up once or twice a year. People don’t need to buy season tickets and show up over 40 times a year so driving out to the burbs isn’t such a bad thing.

  18. That being said, that’s why I don’t think this arena should be so publically funded. It’s one of the rare situations where you have TWO teams who need a new building so you have 2 separate ownership groups who can fund this.

  19. I don’t quite get the argument. You’re saying it’s a tougher sell for season ticket packages if people have to drive further for every event vs selling one off tickets where people drive further for that single event ?

    How about “it’s easier to sell one off tickets to a concert if you know you can have a few drinks, stay until midnight, and not have a 30 minute drive along a freeway home ” ?

    I guess it depends on who is calling the shots for priority but I think most concerts end later than NBA/NHL events.

  20. TB:

    Unless Mr. Illitch plans to buy the Pistons from Tom Gores, it is impossible to imagine they will become a tenant in the Red Wings building and vacate the one they actually own.

    Downtown Detroit (unlike Manhattan, Toronto, Chicago, Boston and many other major cities) does not have a large population of extremely wealthy citizens willing and able to buy basketball tickets. In fact, the poor demographics and crime of the area was a major reason why the Davidson family decided to make their team a “suburban” one in Auburn Hills – a fairly wealthy area. I am not aware of any plan or indication by the team that they intend to move, or have ever considered moving, back to downtown. If you have a link to anything like that, could you post it please?

    The Wings do not play in the worst arena in the NHL. The commissioner has listed at least three others that are the worst in successive arena extortion plays… What the JLA lacks is suites and luxury boxes, both of which became commonplace less than a decade after it was built. I’m sure Illitch would love a new building, especially if it were built with lots of public money and was exempt from property tax and was leased back to him for $1 a year or something like that.

    But the Red Wings (even in the horrendously depressed city of Detroit) are still among the highest revenue generators in the NHL. They may be lower on the food chain than they used to be (once as high as fourth IIRC), but that has more to do with the fact that lots of their fans have no money. And a new arena isn’t going to fix that.

  21. http://www.mlive.com/business/detroit/index.ssf/2012/12/frustrated_with_right-to-work.html

    Ilitch’s scheme might get caught in the crossfire of Michigan’s right-to-work storm

  22. Ilitch’s scheme might get caught in the crossfire of Michigan’s right-to-work storm. Couldn’t post the link, but basically Democrats are threatening to kill everything, including this, and Republicans were already uneasy with it to begin with. Good riddance