Detroit’s bankruptcy may not derail Red Wings arena subsidies

So Detroit filed for bankruptcy yesterday. It’s a Chapter 9 bankruptcy, which is the kind that cities use, and Detroit’s emergency manager — who was appointed by the state earlier this year to take over the city’s finances — plans on using it to get out from between $18 billion and $20 billion in debt, forcing creditors to accept pennies on the dollar and renegotiating union contracts and pension plans, with the goal of emerging from bankruptcy in late 2014.

You don’t care about any of that, though. You — judging from my email — just want to know, “What business does a bankrupt city have spending more than $200 million on a new arena for the Red Wings?!? Does this derail the downtown arena plans?”

My best guess: probably not, though it could complicate them. First off, the arena isn’t going to paid for by Detroit, but rather by the separate Detroit Development Authority, which has a special revenue stream of property taxes that it gets to siphon off before it hits the city treasury. And because the DDA’s tax collection power is authorized by the state, not the city, I’m not sure a bankruptcy court could order the city to abrogate that deal even if it wanted to, which admittedly is a pretty far-fetched scenario to begin with.

So the DDA still has money, even if the city of Detroit has none. There are a couple of potential problems, though. First off is the PR one: It just looks really really bad to be proposing to hand over $200 million to the local rich guy when you’re telling city workers that they’re not going to be getting their pensions. Second, property tax revenues are notoriously volatile; if the DDA was hoping that bond buyers would purchase their debt figuring that the city would backstop them if anything went wrong, well, promises by Detroit to backstop anything just became worth less than the piece of paper they’d be printed on, if anyone ever printed anything on paper anymore.

Still, one thing the Detroit no doubt can and will tell both residents and creditors is that it needs its money in order to fund things that will help the city get back on its feet again, which could be interpreted, depending on your political perspective, to include development projects. In fact, Detroit emergency manager Kevyn Orr is already saying it, according to the Detroit News:

Instead of paying creditors in full, Orr would use $1.25 billion over the next decade to buy police cars and fire trucks, replace broken street lights, tear down burned-out homes, fight blight and improve city services.

Orr wants to stabilize the city, woo new residents, provide essential city services for Detroiters, lower property taxes and transfer costly departments, including the water department, to an outside group.

While everybody likes fire trucks — especially the sirens! rrrrrreeeeeyoowwwww! — “fighting blight” is the kind of nebulous term that can be used for most anything, but is most commonly employed for knocking down old stuff and putting up new stuff. And if Orr is going to “woo new residents,” he could certainly make the case that what new residents want is a shiny new downtown arena district, even if $200 million could buy an awful lot of fire trucks.

So no, this likely isn’t a death knell for the Red Wings arena project, though both Orr and Wings owner Mike Ilitch are going to have to do some tricky navigating if they want to pull it off. If anything, Orr’s modus operandi sounds like the one pursued — sans bankrutcy filing — by Indianapolis Mayor Stephen Goldsmith, who similarly tried to privatize city departments while giving money to the local sports team. And that worked out … um, not so great, but second time’s the charm, right?