When Detroit gives $300m to Red Wings, that costs Detroit $300m

Bill Shea of Crain’s Detroit has a rundown of the Detroit Red Wings arena funding plans today, and while he’s generally excellent, I do have a small bone to pick with him over this:

General Motors Co. and other downtown corporations will be the chief funders via their property taxes of the public portion of the $650 million Detroit Red Wings arena and entertainment district under a plan announced last week.

Detroit’s Downtown Development Authority intends to use $284.5 million in property taxes captured within its 615-acre downtown district to pay off bonds issued by the state to build the 18,000-seat arena at Woodward Avenue and I-75.

GM has the largest taxable value within that district, and it and other corporations, along with small- and medium-sized property owners, will foot some of the arena’s bill through property taxes.

Well … sort of. Yes, downtown property taxes would be siphoned off to pay for the arena, and yes, GM is the largest property tax payer in that area. But they’ll be paying those taxes regardless of what the DDA uses the money for — it’s a bit like saying that because Bill Gates is the richest man in America, he paid the most for the Iraq War. (Ha ha, just kidding, the richest people in America don’t really pay the most in taxes.) Unless there’s a special tax on GM, which there isn’t, this is just Detroit spending out of its general revenues and assigning the cash flow to its “downtown property taxes” column. But that’s okay, it’s not like Detroit is suffering through a crime wave because it can’t afford to fix its street lights or anything.

To be fair, as Shea notes, the DDA’s property tax fund can only be used for economic development. To be equally fair, working street lights are probably a pretty good economic development catalyst. The DDA also claims that the state reimburses the city’s schools for lost property tax revenue, but I’m not finding that in the DDA’s audits.

In short, Red Wings owner Mike Ilitch is still looking at getting more than $300 million in subsidies to help build his arena, and that money has to come from somewhere. And since neither Detroit nor Michigan is raising taxes to come up with it, it has to come out of some existing public pocket. Deciding which public pocket is as much semantics as economics, but suffice to say it’s $300 million that Detroit won’t have for spending on anything else.


10 comments on “When Detroit gives $300m to Red Wings, that costs Detroit $300m

  1. Daytona frontstretch getting $400M facelift and no public money!

    http://tbo.com/ap/sports/daytona-frontstretch-getting-m-facelift-ap_sportscd472bd4c7c34262870db76f979bee82

    If Daytona can do it with no public money, why can’t MLB, NFL, NBA, and NHL teams?

  2. So, property tax money is fungible . Shocking.

    Next we’ll have a discussion about how a large chunk of those property taxes would normally go to schools… something Detroit PS is so in financial disarray on they have an actual “Emergency Financial Manager” in charge of the money.

  3. I forgot to mention that the Detroit emergency manager is so distraught over the city’s finances that he apparently can’t even get his head out of his hands to be photographed:

    http://detroit.cbslocal.com/2013/05/12/kevin-orr-releases-financial-plan-for-city-of-detroit/

    To be fair, pretty much every city in Michigan has an emergency manager now, mostly because the governor things it’s a way to bust municipal unions. To be also fair, Detroit’s finances are still a wreck regardless.

  4. Neil: Generally excellent is more than my mother would even say. Thanks.
    The intent of the story — written in an hour on deadline on Friday, as the city and state were very late in providing answers to questions — was to explain where the money was coming from, not as any sort of justification in how it’s being spent. The local general assumption, corrected neither by the city nor Olympia, was that the money was coming out of the general fund and income taxes. No one had explained the origin of the money, or that it has been used on downtown buildings since 1989. It was never being spent streetlights (which have a separate fund, I believe) or on schools or general debt, pensions, cops, ambulances, etc. I wasn’t suggesting the 20+ year spending of that tax capture was right or wrong, but simply how it has been done and who has been supplying the majority of it. It’s not coming off the backs of the residents, which has been the general assumption locally.

  5. Thanks for the clarification, Bill. And to be clear, there’s a ton of useful information in your article. I just think it’s dangerous to say “Taxpayer X is paying for something” when really it’s just Taxpayer X paying their usual taxes, and then the city and state deciding to carve out that chunk of money and spend it on one particular thing.

    So since I have you here, what has the DDA been spending the money on since 1989, in addition to the housing and office towers you mentioned? And were you able to confirm whether the state has backfilled the lost revenue for Detroit schools? Or is that beyond the scope of an article written late Friday afternoon and yet to be determined?

  6. A lot of that is TBD. That 1989/1996 bond series paid for those office buildings, an earlier round of Cobo Center renovations … largely building/structure projects, from what I am told. The bonds created a single pool out of which these projects were funded, and the tax capture paid those down.
    I felt an explanation was needed on who was paying the taxes that were going to be taken for this project, especially in light of Detroit’s current situation. It’s a very important distinction, and GM happened to be the largest. Obviously, GM and the other taxpayers don’t control where those funds go, but the fact the majority of the taxes in question come from 10 corporations in the city was something people should know.
    I also thought it important to explain that this was a special assessment originally earmarked for schools, not a general fund city tax collection. They were never going to the city regardless of the DDA capture. If they didn’t go to the building projects, they would have gone to the school district (and, theoretically, the state could have spent the replenishment money elsewhere). Of course, the schools have been in trouble like the city, too.
    At this point, I have no reason to believe anyone is lying to me about the state refunding the taxes to the schools, but it is something I am trying to confirm at the state level.
    I also want to know what the DDA would spend the money on if this project didn’t exist. Would it just go to the schools? Would the DDA craft other projects? I don’t know. The other projects are all paid down. I don’t believe the money is legally allowed to be pooled somewhere to just idle and collect interest.

  7. “I also want to know what the DDA would spend the money on if this project didn’t exist.”

    Yeah, that’s the big question for me.

    So when you say “special assessment,” is it extra property taxes on top of the regular ones? Or just a redirection of existing property taxes?

  8. I’m also trying to find that out — this capture dates back to before Michigan changed its school funding methods, I believe, to when local property taxes included a school-specific millage paid directly to the local distract rather than the money doing to the state to be apportioned by the state on a per-pupil funding formula.

  9. http://www.degc.org/news.aspx/detroit-downtown-development-authority-approves-650-million-framework-for-downtown-events-center-and-entertainment-district

    The primary public funding mechanism for the $450 million center is a continuation of a projected $12.8 million-per-year property tax capture authorized by the State Legislature last December. The DDA is also expected to contribute an average of just over $2 million per year. Olympia Development is expected to contribute $11.5 million per year. All three of those commitments would be used to retire 30-year private activity bonds issued through the Michigan Strategic Fund.

    And from Dec 19th Detroit Free Press article:
    The DDA bill would allow the city’s Downtown Development Authority to continue to capture funds — about $12 million a year — that could be used to help pay for infrastructure needs associated with the project that would include a new arena for the Ilitch-owned Detroit Red Wings, one of the National Hockey League’s most successful teams.

    “We’re a homegrown, deeply-rooted Michigan organization that has made significant investment in the city for over 53 years,” said Chris Ilitch, president of Ilitch Holdings. “It’s exciting for us to continue this investment.”

    Some Detroit Democrats in the state House voted against the DDA bill because the money would have otherwise gone back to the state, which would have used it for education.

  10. http://michiganvotes.org/Legislation.aspx?ID=146125
    Going through Full Text, then 12-12 house fiscal agency summary.

    FISCAL IMPACT:

    As written, the bill would reduce State Education Tax (SET) and local property tax revenue (including local school operating levies) by an unknown amount, depending on the ultimate details of the project authorized under the bill. Because of the reductions in SET revenue (which is earmarked to the School Aid Fund) and local school operating levies, School Aid Fund expenditures would need to increase to prevent reductions in the per-pupil foundation allowance.