Happy new year, cities drowning in stadium debt!

Happy new year! The arrival of 2013 means a fresh start, and a time to put the troubles of the past behind — unless, of course, you’re Bridgeview, Illinois:

One of the Chicago area’s most debt-saddled suburbs is borrowing even more money as it tries to put off the worst of its financial pain over the struggling Toyota Park stadium.

The latest borrowing binge — $27 million — will put Bridgeview taxpayers at greater risk of funding an even bigger bailout of the village-owned stadium if it continues to flounder. Municipal finance experts say it is another worrisome sign for a small suburb that took a huge gamble to build the 20,000-seat professional soccer stadium.

As you may recall from past reports here, Bridgeview borrowed $100 million in 2006 to build a new stadium for the Chicago Fire, with the expectation that it would pay it off from stadium revenues. Except that the lease said that all soccer revenues would go to the team, leaving the city with only money from concerts and the like, which haven’t been enough to pay off $100 million in debt. So now Bridgeview keeps borrowing more money to pay off the existing loans, and as the Chicago Tribune reports, “The move comes as Bridgeview officials try to reassure residents in newsletters that do not detail how the downward spiral will be reversed.”

Okay, but it’s a happy new year for everyone else … okay, except maybe Glendale, Arizona:

Glendale, Arizona’s bet on becoming the Phoenix area’s sports and entertainment hub is resulting in higher taxes, fired workers and rising penalties on its debt.

The city confronts new budget cuts after agreeing last month to pay $308 million over the next 20 years to keep the National Hockey League’s Phoenix Coyotes, which had the worst attendance in the NHL last season. After downgrades by both Standard & Poor’s and Moody’s Investors Service that cited the hockey payments, investors demanded a 7.5 percent higher penalty on city debt compared with 11 months ago.

Glendale, of course, just put itself on the hook to pay the Coyotes’ new owner upwards of $12 million a year just to keep his team there, on top of the $12 million a year they’re spending to pay off the arena bonds. Plus the city put in money for infrastructure for the state-built Arizona Cardinals stadium, plus $200 million for a spring training baseball facility. Which all worked out great, if by “great” you mean having to fire large chunks of your city staff while being unable to borrow any more money at less than usurious rates.

Not every stadium and arena deal works out this badly, obviously, and the economic downturn hasn’t helped. (And isn’t going to be helping for a while yet, it looks like.) But if there are any suburbs and small cities out there reading this who had been thinking, “Yeah, a new stadium would totally be a way for us to get noticed!”, it’s worth noting: You might end up getting noticed for reasons you’d prefer not to.

10 comments on “Happy new year, cities drowning in stadium debt!

  1. Let’s not group Glendale with Bridgeview.

    Glendale still has the Westgate development (shopping, hotel, bars, restaurants) that probably would not exist without the arena and the Coyotes. Whatever the number is of government jobs that have been cut by the city, a far greater number of jobs have been gained via Westgate. Obviously paying eight figures per year to maintain those jobs is less than ideal, but to me Glendale is far from a failure. If things still look this bad when the economy rebounds in 2017, then we can bash Glendale.

    Bridgeview is an abject failure. I’m sure that the Fire regret that one as much as Bridgeview does. The team can’t draw (in part because they’re in Bridgeview and in part because there’s a giant stage where stands should be), the city can’t book concerts (in part because most bands would rather avoid a venue where the first 400 or so feet in front of the stage is a flat field) and both are stuck with each other because it just isn’t politically possible for either to kill the deal and move on.

  2. Those jobs that Glendale cut were the things that cities are actually supposed to pay for. Are you saying cities are better off spending their money on retail mall workers, and getting rid of their municipal employees?

    And why, exactly, is a subsidized mall job a good thing?

  3. I have no idea which Glendale city jobs were cut, so I can’t speak to how useful those jobs were. As for whether it’s a good idea for local governments to support private initiatives that are likely to result in more jobs, I’d say that it varies from case to case. In Glendale’s case, the arena triggered far more development (and, therefore, long term jobs) than most sports facilities do.

    My main point is that I find it disingenuous to cite the loss of city jobs when arguing that the Glendale arena is a failure. That city has far more jobs because of that arena.

  4. Even if Glendale is some sort of net gain for jobs (not factoring in the kinds of jobs), that still doesn’t mean the public money wouldn’t have been better spent on other kinds of economic development that doesn’t consist of mitigating the risk for a billionaire to own a sports team.

    And while I agree that Bridgeview is not working well (read: borderline disaster) for either the Fire or the suburb, plenty of bands are happy to play places where the entire venue is acres and acres of flat field (Coachella, ACL, Bonnaroo, etc.). Yes, those are destination festivals, but the point is that, on the list of reasons a band will or won’t play a venue, “how much level space is in front of a stadium” isn’t really high on the list.

  5. Westgate will probably go belly-up with or without the Coyotes. Let’s face it, malls are dying. Read more here: http://boingboing.net/2012/12/30/malls-are-dying.html

    I’ve never heard of a shopping complex heavily relying on nearby sports teams for revenue! These places should be strategically placed to thrive regardless of nearby sporting events.

    Speaking of which there are so few nights a year In Glendale for Westgate to gain anything from. Maybe 70 nights a year, if the Yotes went all the way. That’s just bad business for the other 290+ days a year.

    Westgate had three years to establish itself before the Coyotes bankruptcy, and its already living on borrowed time:http://en.wikipedia.org/wiki/Westgate_City_Center#Foreclosure Some would say it’s doomed to fail, but it appears it already has.

  6. Could a town like Bridgeview — or any municipality — get out from under its ill-advised stadium debt by declaring bankruptcy?

  7. They wouldn’t get out from under it per se. Once a municipality declares bankruptcy, its unfunded liabilities (of which stadium bond debt would be one) don’t just disappear. So they would still have to negotiate a bond payment schedule.

    They would also have to balance a budget going forward. First things to get cut are usually city services like fire, police, and road construction/maintenance. People don’t like to live where they can’t get police protection or decent roads to drive on. So there is risk is further eroding what tax base you do have.

    It’s a solution, but it might not be a particularly good one depending.

  8. Job cuts in Glendale thus far have been police, fire and office staff. Last I heard, they were planning to cut library hours and close some admin offices. I would assume all “soft” cuts have been made, like road repairs and transit cuts. Cities generally cut those things first as it doesn’t necessarily mean job losses.

    As for Westgate being something like a boon to the local economy, the suffix on that descriptor seems to be missing. One of the reasons the city has continued to funnel tens of millions into subsidizing the hockey team is that they believe Westgate will collapse without the traffic generated by the coyotes. Given that most nights there are 8,000 people or less in the stands, I don’t necessarily buy that argument. The suggestion has been made that the city must maintain their “hockey related” revenue streams at Westgate. Well, if there are 400,000 fans going through the turnstiles in a year, and if each one spends an additional $100 at Westgate every game, and Glendale imposes an aggressive 25% tax on all sales (which would kill sales @ Westgate, let’s face it), the city would still only see an additional $10m in revenue. Not nearly enough to justify a $25m annual subsidy, which is what they’ve been paying the NHL to keep the team there for two years.

    As Dave says, Westgate appears doomed regardless of whether the hockey team stays there.

    Of course, when someone buys the shopping centre and arena out of bankruptcy (or from the city, in the case of the arena), the sunk development costs for the city do not get repaid. It seems unlikely that Glendale can even “recover to zero” on the arena and parking facilities. People can blame the “economic downturn” if they want, but the fact is that Westgate was never as popular as the city and Ellman were hoping (counting on, in fact). Even during the boom times, the city never saw anything like the spin off revenues they were promised. Of course, happily for Ellman, it was just a promise… so the city is stuck.

  9. And since Glendale’s actual tax take is 2.2%, John’s calculations pencil out to something less than $1 million per year. But I’m sure there are all kinds of multipliers, unseen benefits and other stuff that makes a $25 million annual subisidy (on top of a $180 million arena) into a profitable arrangement.

    For somebody.