OT: State of Michigan Approves Bonds for New Hockey Arena

Submitted by Come On Down on July 24th, 2013 at 4:04 PM

The state approved $450 million in bonds for the new Red Wings arena in Detroit today. Seems like the project is going ahead even with the bankruptcy.

http://www.detroitnews.com/article/20130724/BIZ/307240089/State-approves-450M-bonds-new-Detroit-arena-entertainment-district?odyssey=tab|topnews|text|FRONTPAGE

 

Edit: Title changed to prevent massive heart attacks

Comments

WolvinLA2

July 24th, 2013 at 4:32 PM ^

And I just read today how the people who own the silverdome want to buy a huge chunk downtown to build a soccer stadium a bunch of retail, residential and office space. Big things happening for a town looking to declare bankruptcy.

WolvinLA2

July 24th, 2013 at 4:48 PM ^

They're doing something similar with downtown LA but a decade or so earlier. Cool apartment buildings, fun bars and stuff going on (Staples Center area) brings people down and the rest takes care of itself. Young people like urban living so if you can make it seem safe and cool, people would rather live there than RO or the like.

WolvinLA2

July 24th, 2013 at 5:41 PM ^

I don't know all of the details, but there has to be a reason this was approved, because projects like these get denied all the time.

It's possible that this is a (small) net loss to the state, but a big gain for Detroit that needs it, meaning the rest of the state pays a little for it (which is one of the ways the Detroit suburbs pay for Detroit stuff).

Colin M

July 24th, 2013 at 6:15 PM ^

Do you have any evidence that this will be a "big gain" for Detroit?

There has to be a reason, but it isn't necessarily a good one.

Most new pro sports stadiums are publicly funded, despite the mountain of economic research showing it's dumb. Richard Daley was claiming that hosting the 2016 Olympics would be great for Chicago when that wasn't supported by any independent studies. The people who want this to happen are very powerful and they're getting their way.  I'm not particularly comforted by your logic that it must be a good idea because some bad ideas denied.

joeyb

July 24th, 2013 at 6:29 PM ^

This plan funding isn't just to build a new arena, but also to revamp the area to bring in more businesses. That hopefully leads to the perception of a safe and fun environment. That would bring in a lot of younger people, which drives up housing prices and increases the tax base.

Detroit has no assets that are going to attract people to live in the city. Unless they change that, there is no hope of turning the city around.

WolvinLA2

July 24th, 2013 at 6:35 PM ^

I don't know that it will be a big gain for anybody, I was merely speculating on why this got passed.  You seem convinced it's a dumb idea without any evidence other than "other publicly funded arenas have been dumb ideas" and I'm throwing out reasons why this could be different. 

As for your last sentence, when did I say this "must" be a good idea, or even suggested that?  Or use any logic near what you're suggesting?  What I'm asserting is that someone thought this was a good idea, and I agree with you that it could simply be powerful people getting what they want.  But that's also not necessarily the case, as there are good reasons for the state to be doing this. 

That said, I would imagine this is a pretty big gain for Detroit since they get something (a new arena plus the other development that will go with it) without paying for it themselves.  I can't see how that's not a pretty big gain for the city. 

Colin M

July 24th, 2013 at 6:48 PM ^

1) The fact that other publicly funded arenas have been net negative benefits is plenty of reason to oppose this. I think in the face of that evidence, the burden of proof is on the proponents to demonstrate that this is a good idea. 

2) I interpreted your comment that "but there has to be a reason this was approved, because projects like theese get denied all the time" as you saying that it was probably a good idea. I apologize if I misinterpreted it. 

3) A big gain relative to what? JLA already exists and sells out. Building a new arena helps Illitch make more profit but it won't necessarily bring more revenue to the city, since the relative attendance will probably stay the same. I know there are other facets of the development, but it's incorrect to say that it doesn't cost Detroit anything. There is an opportunity cost, which is the value of the next best forgone option. If there was something that would have helped Detroit more than giving Illitch a bunch of cash to build this development, than this will not represent a big gain. 

WolvinLA2

July 24th, 2013 at 6:56 PM ^

I agree with you that it's possible (if not likely) that there could be better uses for this money than this particular project.  But I do think this will have positive effects on the city since it will keep attendance high (those figures tend to drop over time for aging arenas) and the nearby development will attempt to bring the fans earlier before games and keep them around after games spending money. 

This is something that Staples Center did very well.  The forum had little around it to attract fans pre-and post-game.  The Staples Center now has a lot of bars and restaurants (and now movie theaters, bowling alleys, dance clubs, everything) where Lakers/Clippers/Kings/Sparks(haha) fans can spend their money before and after the game.  Hopefully this project will do a good job with that stuff as well, which the city will certainly benefit from. 

WolvinLA2

July 24th, 2013 at 5:31 PM ^

First of all, the state is approving the money, not the city. Secondly, without speaking to this decision specifically, investing in a broke Detroit isn't a bad move by the state.

This is like if I was broke, and my parents lend me money for a suit to wear to an interview. Is it dumb to lend money to a broke person? Usually, but my parents likely benefit from me getting a job, so investing their money in my future could be a very good use of their money.

LSAClassOf2000

July 24th, 2013 at 5:32 PM ^

Per this article in Crain's from June, the proposal outlined in the MOU had these bonds being paid as follows:

- Annual DDA tax capture of $12.8 million to not more than $15 million annually, funding that was authorized by the state in December for use on the arena project

- $64.5 million in other DDA tax capture funds

- $11.5 million annually from Olympia as a concession fee.

The structure of the funding will include no general tax revenue from the city of Detroit, according to those who put this proposal together. 

Doc Brown

July 24th, 2013 at 6:05 PM ^

I love Joe Louis too. However, I directly believe the arena despite all of its character is harming the franchise from failing to attract top free agents. A shitty run down arena like JLA gives off the impression that management is run to a similar degree (which is farther from the truth). 

WMUgoblue

July 24th, 2013 at 6:13 PM ^

The Joe is classic and all, but it's a downright dump. You have to wait 20 minutes standing in line for any bathroom, walking up and down the stairs can give any normal person acrophobia, it's dark and just has the feel of a 1620's dungeon, it's just too old. You're certainly right that it has character but the cons far outweigh the pros plus parking outside is an absolute nightmare.

Picktown GoBlue

July 24th, 2013 at 5:57 PM ^

But I'm also one who enjoys good number crunching.  Even though the subjects were here in the worst city ever, this interesting paper has this conclusion:

The estimated value of intangible benefits generated by the two facilities in Columbus capitalized into residential housing prices provide a rough bound on the size of the intangible benefits that can be expected from other sports facilities. A new state of the art facility integrated in a comprehensive urban redevelopment program and located in the heart of a large city might be expected to generate increases in residential property values in the vicinity of hundreds of millions of dollars within a mile of the facility, if the location, planning, construction, and development is carried out carefully. ... By assessing the impacts of sports facilities on residential housing values, we add to the understanding of the economic benefits generated by professional sports facilities and help explain why cities continue to compete to subsidize sports facility construction. In particular, our results suggest that cities continue to subsidize the construction of professional sports facilities despite the lack of evidence that these facilities generate important tangible economic benefits because the facilities generate important intangible economic benefits. The presence of a professional sports facility and team, will generate substantial intangible benefits that are capitalized into housing values and enjoyed by the residents of the community. This has significant policy implications. In most cases, cities compete to attract a professional team or retain their current teams by subsidizing the construction of a new sports facility or the renovation of a current sport facility, not only because of the direct economic impacts but also because of these intangible benefits. The increased housing values, or households' WTP for it, combined with the other direct economic impacts, may justify the subsidies.

 

WTP=willingness to pay

Colin M

July 24th, 2013 at 6:36 PM ^

It's an interesting paper from a technical point of view, but I have two issues:

1) The authors seem to be asking "why do municipalities/states/counties keep financing these things if the literature has demonstrated there is a net negative tangible benefit." They hypothesize that their are intangible benefits and use the housing value as evidence. Any political economist would point out that when you have a concentrated interest with strong preferences versus a diffuse group with weak preferences that the concentrated interest will win. Basically, the really rich owners can get even more rich and the voters don't care enough to stop them. This is the explanation that makes way more sense to me.

2) One should always use CBA over EIA to make policy recommendations because only a CBA calculates the net benefit. I'm pretty sure you know that since you're clearly a giant nerd (this is a compliment).

Anyways, based on your comments in a previous thread, I don't think you're advocating for this kind of thing. Just adding my two cents.

Picktown GoBlue

July 24th, 2013 at 7:06 PM ^

And given my short memory I may have used the same paper to argue against public funding in that other thread.

In remotely related news it looks like Chicago will get some Wrigley updates but no bridge over Clark Street (all team funds $500M). Now there's a neighborhood that doesn't need any help in raising property values.

Brown Bear

July 24th, 2013 at 7:06 PM ^

I think the timing of this is unfortunate to say the least. If this happened a couple months down the road the backlash would t be as severe.

Don

July 24th, 2013 at 7:24 PM ^

The Joe was an ugly disaster the day it opened, and it isolated the Wings in a part of downtown Detroit that doesn't have anything else. It's much better to put the Wings in a place where they can work in a synergistic fashion with other activities.

Whether it's a prudent expenditure of public monies is another question entirely.

g_reaper3

July 24th, 2013 at 7:52 PM ^

I remember going there as a kid around when it opened thinking how stupid a really steep big staircase is on a stadium used for winter sports. Olympia had charm like Yost. I understand a pro team needed more than charm, but Joe Louis seemed to miss the boat on everything but more seats. The Palace opened about a decade later and seemed significantly better.

Indiana Blue

July 24th, 2013 at 9:20 PM ^

but WTF ... when your largest city (ya know - the one that essentially provided the economy for the State since the 1930's) declares bankruptcy .... the State itself has a BIG problem.  Building shiny structures with NO foundation will collapse  -  the taxpayers in Michigan better rise up .... politicians seem to be living in this new world order that has no regard for financial practicalities - and if the State is paying that means the taxpayers are paying.   What is the State's unemployment rate ? What is the State's growth prospects ?  

Wow - I love the Wings & I've only been to the Joe twice ... but someone in Michigan needs to get a grip on reality.

Go Blue! 

bokee88

July 25th, 2013 at 8:38 AM ^

I have spent most if my life living in the metro Detroit area. The auto industry is still huge here. So there are still jobs and lots and lots of money. It just all resides on the ring around Detroit. So there is an economy to support a vibrant downtown, including sports venues. Ford Field sells out every game and the Tigers have been near the top of attendance for a few years also. The city council and leaders in downtown just can't run a city properly and haven't for 40 years.

jdon

July 25th, 2013 at 1:09 AM ^

I'll spare the political rampage and just say that the amount of money spent on sports, on each and every fucking level from normal person to mayor to congress, is indicitive of what people value...

The creation of a New Arena while bankrupting is the most obvious sign that we will not rebound...  this city is done.

jdon