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Red Wings Stadium Upset!

Why Taxpayers Are Losing — Again — in Detroit

Story by Bill Bradley

Illustration by Hawk Krall

Published on Mar 3, 2014

Two days before Christmas, the Detroit Red Wings got booed out of their own arena. The lowly New York Islanders scored three goals in the first period and sucked all the excitement out of the building. Between periods, I strolled from the nosebleeds down to the bathrooms, where I encountered hundreds of half-drunk fans waiting in lines that snaked down the concourse. A man in front of me, dressed in a Steve Yzerman jersey and no doubt angry with the score and daunting line, remarked that the team’s new arena “couldn’t open soon enough.”

Mike Ilitch and his wife Marian bought the Red Wings for $8 million in 1982. Last November, Forbes ranked the team as the ninth-most valuable NHL franchise, at $470 million. The previous July, just a week after the Motor City declared for bankruptcy, it was announced the public would cover nearly 60 percent of the cost for the team’s new $450 million, 18,000-seat arena.

The Wings have played at Joe Louis Arena, on the Detroit River, since 1979. What it lacks in modern amenities — a comically large jumbotron, cup holders, abundant restrooms, hand railings — it makes up for in charm. The Joe is a dump, diehard fans will tell you, but it’s our dump.

Now the storied franchise is headed due north, where it will set up shop between the downtown core and rapidly developing Midtown neighborhood in a roughly 45-block footprint unimaginatively billed as the “arena and entertainment district.” The total price tag, including additional private investments in retail and housing, is an estimated $650 million, $284.5 million of which will come in the form of public investment.

No money will come directly from the city’s general fund — something advocates of the deal are quick to point out — but instead the bulk of public funding will come by way of tax increment financing (TIF). Taxes captured in the 615-acre Downtown Development Authority (DDA) district will be poured into the project. The Michigan Strategic Fund, a state economic development agency, will issue 30-year tax-exempt bonds backed by three revenue streams: The aforementioned TIF capture, various other tax revenues from the DDA and Olympia Development, the Ilitch’s $2 billion enterprise.

The TIF capture will contribute at least $12.8 million annually, though it can’t exceed $15 million. The DDA will contribute about $2.15 million in separate tax collections. Olympia will toss in $11.5 million. And, as Crain’s Detroit detailed in July, public money will pay for $261.5 million (58 percent) of the construction costs, while Olympia only has to pay $188.4 million (42 percent).

If you’re searching for something particularly craven in the complicated financing structure — that is, something other than the careless use of public money itself — look to where, exactly, the tax capture comes from. In December 2012, the Michigan legislature restored Detroit’s ability to levy school-tax funds from the downtown district for economic development purposes. If that $12.8 million annual gift weren’t going to the Illitch empire, it would go to the state’s School Aid Fund.

This is not to say that the arena will take money out of Detroit Public Schools (DPS) general fund. “The state is making up the shortfalls,” said Bob Rossbach, spokesperson for the DDA. “So there is no difference to a student in Detroit Public Schools whether this money is refunding bonds or goes directly into the DPS budget.” But it is diminishing the state’s School Aid Fund by diverting the taxes for “economic development” purposes. Something, somewhere, is taking a hit.

Nonetheless, the Ilitch family — with its estimated $3.2 billion net worth — will get a new stadium, slated to open for the 2016-2017 season, built off the backs of taxpayers.

Not that this is a particularly new tactic. Mr. I, as supporters fondly call him, also owns the Detroit Tigers. When the Tigers, most recently valued at $643 million, wanted a new stadium, Ilitch — who made his fortune off the Little Caesar’s pizza chain — went to City Hall, as would any sports owner in the country. And, as lawmakers are wont to do, they obliged, covering $115 million of the $300 million ballpark costs.

He Can’t Win Without Public Money

Detroit is mired in the country’s largest-ever municipal bankruptcy, staring down $18 billion in long-term debt. Many retirees will lose health care on March 1, only to receive a small stipend. Firefighters and police could see their pensions reduced — some have speculated at 16 cents on the dollar. Local bus drivers are being shot at in the middle of the day. Kevyn Orr was appointed the city’s emergency manager in March of last year, but he wasn’t the first in town: Since 2009 DPS has been under the watch of an emergency financial manager. As part of the district’s 2013-2014 budget, 665 jobs were set to be slashed. The DPS deficit ballooned from $76 million to $82 million. And roughly 600 non-union water and sewer department workers are set to lose their jobs.

Somehow, amid all that financial and institutional debris — which neglected to mention the oft-cited bits about the lack of very basic services and 58-minute average police response time in a city where less than half of the 88,000 streetlights work — there’s still $284.5 million for a new hockey arena.

“This plan is deeply flawed,” one resident said during a community hearing last month at City Hall. “That’s arrogant to do that to a city that’s bankrupt.”

And that doesn’t even include the land. On February 4, City Council voted 6-3 to sell Olympia and the DDA, who will own the arena, 39 vacant parcels for $1. An analysis of city records by the Detroit Free Press found that “several private landowners succeeded in netting millions for themselves by selling similarly situated land in the arena’s footprint to Ilitch-controlled corporations.” Rather than sell the land at market rate, the city is giving them the rest the same way you sell your younger sibling your old car — $1, but just for the title transfer.

Olympia Development’s CEO Tom Wilson, without a hint of irony, called it a “once-in-a-generation” deal.

Jerry Belanger, who owns the Park Bar near the proposed new arena, voiced his displeasure with the once-in-a-generation deal. “I’m going to be taxed to buy [Ilitch] bars and restaurants that will be my competitor,” he said. “He can’t go toe-to-toe with me on a fair playing field. He can’t win without public money.”

After City Council approved the land transfer a man, in a scene that wouldn’t have been out of place in the rafters at a hockey game, yelled, “The citizens of Detroit thank you for selling them out!”

They Kicked Our Asses

Comerica Park opened in 2000, but it never would have happened if Frank Rashid, a lifelong Detroiter and English professor at Marygrove College, had his way. In 1987, Rashid co-founded the Tiger Stadium Fan Club in an attempt to preserve Tiger Stadium, where the team had played since 1912, and stop local sports teams from fleecing taxpayer dollars.

The Tiger Stadium Fan Club may sound like a group of middle-aged men who show up to ballgames early and cut in front of kids for autographs during batting practice, but Rashid and his fellow preservationists were actually hardcore community activists. And, in March 1992, the Fan Club scored a huge victory: A ballot initiative to prohibit the use of public subsidies for stadiums passed and became Ordinance 7-92. If you were, say, a certain local billionaire sports owner looking to build a new ballpark, you’d have to do it on your own dime.

But that was short lived. City Council passed an ordinance in December 1995 that repealed 7-92. In January 1996, the Tiger Stadium Fan Club collected enough signatures to force a referendum that March. It was doomed from the start.

“They kicked our asses,” Rashid told me. “We always knew we wouldn’t have much of a chance. They had TV ads and mailers. I heard they had between $600,000 and $1 million. We had about $20,000 or $30,000.”

It’s no coincidence that in October 1995, shortly before 7-92 was repealed, the city and state had agreed to cooperate on a new ballpark in downtown Detroit. Two years later, they broke ground on Comerica Park in the central business district. The old Tiger Stadium languished in various preservation efforts before it was eventually demolished in 2009. All that’s left is a massive corner lot in Corktown. A group of volunteers maintain the open field. Nemo’s, a revered bar near the old ballpark, shuttles fans to and from Comerica on game days.

“It Passes Off the Cost to Everyone Else”

Between 1909 and 2012, roughly $53 billion — in 2012 dollars — was spent building 186 stadiums across the country, according to research from Judith Grant Long at Rutgers University and Deadspin. Of that, $32.2 billion came from public coffers for a grand total of 61 percent. The public has been footing the bill for stadiums masquerading as economic development for more than a hundred years.

“Few fields of empirical economic research offer virtual unanimity of findings,” economist Andrew Zimbalist wrote in 2000. “Yet, independent work on the economic impact of stadiums and arenas has uniformly found there is no statistically positive correlation between sports facility construction and economic development.”

In that same paper Zimbalist riffed on years of stadium welfare literature and studies, one of which found “no significant difference in personal income growth from 1958 to 1987 between 36 metropolitan areas that hosted a team in one of the four professional premier sports leagues and 12 otherwise comparable areas that did not.” Compare that to the Detroit Lions, whose value skyrocketed from $150 million in 1996 to $839 million in 2006, four years after the franchise moved to its new publicly funded stadium across the street from Comerica Park.

Which is a long way of saying: The franchise owner gets richer, but the city’s residents don’t. Why hasn’t anyone in Washington done anything about it?

“There is no reason on earth for the federal government to be subsidizing these things by allowing tax-exempt bonds to be used for them. It’s stupid. It passes off the cost to everybody else.”

“The people who support this stuff have way more power in Congress than the people who oppose it,” Neil deMause, whose book Field of Schemes and blog of the same name are the urtext on stadium welfare, told me.

But that hasn’t stopped some lawmakers from trying. The same year the ordinance was repealed in Detroit, New York Sen. Daniel Patrick Moynihan introduced a bill that would have eliminated federal tax breaks for professional sports stadiums. The eponymous bill, predictably, went nowhere.

The following year, Minnesota Rep. David Minge introduced the Distorting Subsidies Limitation Act Of 1997. Minge’s bill aimed at subsides of all stripes, from Nike to the New York Yankees. It would have created a “federal excise tax on businesses benefitting from these special targeted economic subsidies,” Minge said at the time. “The rate of the tax will be the same that applies in determining the regular income tax of a corporation.” The bill never made it out of committee.

It’s only common sense that you would tax the subsidies. More often than not, the land for the stadiums is not only forked over free of charge — or, in the Ilitch’s case, for $1 — but the owners live free of property taxes, too. Madison Square Garden, where the New York Knicks and Rangers play, hasn’t paid property taxes since 1982, which the city’s independent budget office said last fall was worth $17.4 million in fiscal year 2014 alone. The entire premise, from the free land to the tax-free bonds, is an exceptional boondoggle.

“There is no reason on earth for the federal government to be subsidizing these things by allowing tax-exempt bonds to be used for them,” deMause said. “It’s stupid. It passes off the cost to everybody else.”

Minge gave it another shot, though, reintroducing his bill to the Ways and Means Committee in 1999, again to little fanfare. Like the first time around, it didn’t make it out of committee.

Beyond Taxation

In 2007, Ohio Rep. Dennis Kucinich organized a congressional hearing on stadium subsidies. “Build It and They Will Come: Do Taxpayer-Financed Sports Stadiums, Convention Centers and Hotels Deliver as Promised for America’s Cities?” was a who’s who of stadium welfare critics, including testimony from both deMause and Rashid.

I tracked down Kucinich, who now works as a contributor to Fox News and runs a PAC out of his native Ohio, to revisit that hearing back in 2007 — why hold it? Was it because the Cleveland Browns bolted for Baltimore? — and see what he thinks can be done about stadium subsidies now.

“I’d been interested for decades in the issues attendant to public resources going to sports franchises,” he told me. “And the sheer amount of money, the purpose of the expenditures, the underlying threats from owners to leave communities and the cost-benefit analysis. There’s a very serious public policy issue here, and I felt it was important to at least call it to the attention of Congress and the American people.”

Kucinich said he felt like the hearing, though it had no measurable effect on policy, at least brought forward a subject “that doesn’t often get discussed.” These days he’s more bullish on how municipalities should handle stadium welfare: Like the big business it is. He wants the city or state to have a stake in the franchise.

“Any time you’re talking about massive investment of public resources, it ought to be treated in the same way that a venture capitalist would treat it,” Kucinich said. “There’s no business in the world — no bank, no venture capital fund — that would give money to an entity without asking for anything in return. Negotiate a position in the same way that a venture capitalist would. You become a partner, not simply someone who is playing Santa Claus with taxpayer money.”

It’s not a crazy idea. Orlando is set to get a Major League Soccer franchise, and when the owners lobbied for a new stadium last August, Orange County Commissioner Pete Clarke proposed a deal that echoed Kucinich’s approach: In exchange for $20 million to fund your new soccer stadium, the taxpayers get a stake in the team.

“I do not want another example of the county expending millions of dollars watching from the sidelines, as our investment climbs in value without the prospects of our taxpayers benefiting,” Clarke wrote in a memo at the time.

He backed off after Orlando Mayor Buddy Dyer rejected his proposal and the team offered to invest $2.5 million over the next 10 years in recreation programs. The county commission voted 5-2 in October to shell out $20 million from a tourist tax without any sort of equity stake in the franchise.

“They just want to get tax dollars. That’s what this is about,” Kucinich continued. “And I’m really talking about applying business and investment principles to sports entrepreneurship. I don’t see why anyone should have any problems with that whatsoever.”

Team Shackles

Seattle Councilmember Nick Licata was one of the local politicians who came out to testify at Kucinich’s 2007 hearing. Licata, who was named Most Valuable Local Official on The Nation’s 2012 Progressive Honor Roll#, is intimately familiar with the world of stadium welfare. He was instrumental in getting Initiative 91 passed in Seattle, a 2006 measure that restricted the use of public subsidies for stadiums. As a direct result, Seattle’s NBA team, the Sonics, left for Oklahoma City.

An estimated 3,000 fans hosted a Save Our Sonics rally outside the Seattle federal courthouse in 2008, where the sale of the team and, ultimately, the Sonics’ fate in Seattle was decided. The Sonics are now arguably one of the most exciting young teams in the NBA: the Oklahoma City Thunder. (Sonic fans were tormented once again last May when the NBA’s Board of Governors rejected a plan to relocate the Sacramento Kings to Seattle. Professional basketball will have to wait, for now.)

When I asked Licata if he’d expected the Sonics to leave for greener pastures — that was the worst that could have happened, right? — he was unequivocal in his reply.

“Honestly, I didn’t have expectations one way or another,” he said. “And this is the reason why: The way I have seen professional sports teams run and operate is that they are businesses. I think they’ll do what they need to do to make a profit. And that’s what happens with professional sports teams. The owners make a profit somewhere else.”

But this is often how stadium subsidies work. Ownership makes threats to leave town — We’ll go to St. Petersburg, Chicago White Sox owner Jerry Reinsdorf promised in 1988 — before lawmakers cower in fear and dole out tax breaks and public money. The panic is universal. Who wants to get run out of office because a beloved team skipped town for a city that offered a plum deal?

Licata had no such problems. When he ran for reelection in 2009, the year after the Sonics had left for the heartland, his opponent, Jessie Israel, came out “aggressively” on the stadium issue. “[Israel] was younger than me, well connected, raised more money than I did and beat me up on that issue,” Licata said. “And I still won by a 14-point advantage. The folks who are strong advocates for professional sports teams are passionate and that passion translates into a lot of heat, but it doesn’t necessarily translate into a lot of votes. ”

Atlanta Mayor Kasim Reed should find solace in Licata’s claims. In November, the Atlanta Braves announced that they will leave Turner Field, originally built for the 1996 Olympics and then converted into a ballpark, for suburban Cobb County. Reed was blunt in his assessment of the move.

“We have been working very hard with the Braves for a long time, and at the end of the day, there was simply no way the team was going to stay in downtown Atlanta without city taxpayers spending hundreds of millions of dollars to make that happen,” he said at the time. “It is my understanding that our neighbor, Cobb County, made a strong offer of $450 million in public support to the Braves and we are simply unwilling to match that with taxpayer dollars.”

Now, it’s worth mentioning here that Atlanta taxpayers are on the hook to the tune of $554 million for the new Falcons football stadium. But Reed’s spurning of the Braves represented the rare occasion of a mayor saying no to stadium welfare. Michael Leo Owens, an associate professor in the department of political science at Atlanta’s Emory University, can’t see it affecting Reed’s legacy or reputation.

“I just don’t think that this is going to tarnish him in any way,” he told me. “In fact, it should actually burnish him. Already folks in Cobb County are starting to say ‘How much money are we really gonna have to pay?’ And if he’s really smart, he could spin this as, ‘Look, mayors need to start standing up for their cities by not letting their cities be shackled to these stadiums and to these teams.’ At the end of the day we know who truly benefits — the teams.”

Give It a Couple More Decades

“Building new professional sports facilities is fine by me,” the late Moynihan said in 1996. “Let the new stadiums be built. But, please, do not ask the American taxpayer to pay for them.” How, exactly, do we curb this rampant abuse of stadium subsidies?

Despite overtures in the last 20 years and the occasional moral victory (cf. Seattle), the appetite for reform and regulation is slim. “The problem is that it doesn’t cut across party lines,” Licata said. “What I found is that you have diehard Democrats who are liberal on all kinds of issues. But when it comes to sports, it’s like it’s a religion. They’re not going to abandon what they see as their religion. So it makes it a real challenge.”

Moreover, you’re dealing with incredibly powerful organizations in the big four — MLB, NBA, NFL and NHL — American sports leagues. Their lobbying muscle, from Congress to city hall, is immense. “Sports team owners have a lot of money for lobbyists,” deMause said.

The panic is universal. Who wants to get run out of office because a beloved team skipped town for a city that offered a plum deal?

The NFL is a juggernaut in Washington. In 2013, the league — which is technically a non-profit — spent nearly $1.1 million on lobbying, more than any of the other leagues. It also has its own political action committee, the Gridiron PAC, which raised $905,525 during the 2012 election cycle, splitting it almost evenly between Democrats (48 percent) and Republicans (52 percent).

“They can bring in the commissioner of the league to make scary announcements and talk to lawmakers,” deMause said. “They have a lot of friends in the business world and in the chamber of commerce areas, and I think it really just puts politicians in this place where they’re backed into a corner. Or they feel like they’re backed into a corner, even if 80 percent of the public is opposed to this stuff.”

A Reasonable Return

Ending the scam that is stadium welfare very well may have to start with local leaders — like Licata in Seattle and Rashid in Detroit — before there’s a better chance of real change in Washington.

“I think it has to be both at once,” deMause said. “Congress isn’t going to act until there’s a major public groundswell, which needs to happen locally because organizing takes place around this stuff on a local level. At the same time, local officials are always going to be at the mercy of teams threatening to move — even if only to the county across town with the elected officials dumb enough to fall for their scam — until there’s some federal restriction on companies playing off localities against each other.”

What actual regulations would look like is another question. The 1986 Tax Reform Act, which tried to curb tax-exempt financing for stadiums, actually made it worse. The act denied public subsidies for stadiums if more than 10 percent of the debt was to be paid by revenues from the stadium. But a loophole simply allows owners to just unload 90 percent of construction costs on the public. “If Congress intended that this would reduce sports subsidies,” the Brookings Institution wrote in 1997, “It was sadly mistaken.”

Moynihan, Minge, Licata and Rashid put forth various bills and ordinances that aimed to stem the flow of public subsidies to sports owners. But it’s Minge and the late Moynihan’s proposals that might actually have legs in Washington someday down the line.

It’s simple: Tax the subsidies. At the very least, it would give cities and states a modicum of return on their investment. “It’s not a question of no public subsidies,” Licata said. “A reasonable amount is okay, but you want to get a return on it.” And if subsidies were taxed at a prohibitively high rate, something deMause and others have advocated, it could discourage owners from seeking subsidies altogether.

“In my dream world, it’s a 100 percent tax — you get a $500 million stadium, you owe the IRS $500 million — but I’d settle for it being counted as regular taxable income,” deMause said. “Which would be enough to put a huge damper on team owners’ incentive to ask for public money.”

The problem is that any sort of movement necessitates not only money, but also people. “You need an organization to push for it nationally,” Licata said. “Dennis Kucinich tried. He had a massive federal image and the ability to hold Congressional hearings. But an organization needs a dedicated staff.” Outside of the occasional movement like the Tiger Stadium Fan Club or the outspoken lawmaker like Licata, there’s no hard push for this on Capitol Hill.

“Probably the most likely scenario is for there to be more local officials like Nick Licata pushing for limits on sports subsidies, then they band together into some kind of coalition, then they work on getting federal legislation passed,” deMause continued. “Given that they’ll be going up against the sports industry, though, there will probably need to be some kind of lobbying reform and/or campaign finance reform put in place first. We all need to hope for a really, really embarrassing lobbying scandal of the kind that is so horrific that Congress has to act — which you’d have thought we’d have gotten by now, but give it a couple more decades and I’m sure they’ll stumble into something.”

If Everything Lines Up

While the prospects of stadium financing reform are bleak — everyone I spoke with said it’s highly unlikely that anything substantial will happen in the next decade — Detroit is set to give Ilitch another sweet deal on a stadium, which will only increase the value of his franchise.

The new arena and entertainment district is just another episode in bad oversight and poor city planning. Rather than talk with planners and community development organizations, the development mantle has largely been carried out by Olympia, which has been snatching up parcels in the new arena district for years.

“I would say this is typical Detroit planning negligence,” a source deeply invested in the city’s real estate and development scene told me. “From the bitching around town, I get the impression that Olympia has been buying and hoarding that land for like 20 years. They’ve been letting it sit vacant and sad until the right time — apparently, now.” What Olympia couldn’t snatch up for the better part of two decades, it has now bought for the quite agreeable price of $1.

What does this mean for longtime residents of the Cass Corridor, as the area had previously been known? A small group of Detroiters founded the Corridors Alliance more than three years ago upon hearing the first whispers of a new arena. This December, the Alliance sent a list of community benefit requests — simple planning considerations like use of green space and preservation efforts — to City Council.

“What I found is that you have diehard Democrats who are liberal on all kinds of issues. But when it comes to sports, it’s like it’s a religion. They’re not going to abandon what they see is their religion. So it makes it a real challenge.”

Francis Grunow, who sits on the Alliance’s steering committee, has been stonewalled by Olympia. “They have said that they will not sign a Community Benefits Agreement,” he said. “And have been reluctant to meet since we announced that is what we wanted.” L.A.’s Staples Center and the Pittsburgh Penguins have community benefits agreements (CBAs) that bind developers legally to certain provisions and oversight. In Pittsburgh, the CBA has lead to the hiring of local residents and minorities and has also helped keep down residential rents in the area.

Olympia has agreed to a neighborhood advisory committee and a local hiring clause that would require the company to hire Detroit residents for at least 51 percent of jobs tied to the development. But Council President Brenda Jones voted against the land transfer deal because Olympia refused to guarantee a certain number of post-construction jobs to Detroiters. Besides, the advisory committee is nothing more than a glorified focus group. It will take input and listen to residents’ concerns. But there’s no oversight or stringent enforcement. It’s not a binding contract, like a CBA.

When I asked Brian Holdwick, DEGC’s executive vice president of business development and finance, about what might be done to address potential displacement in the area — something Councilmember Raquel Castañeda-López told me small stores and long-time residents fear — he shot back quickly.

“I’m not aware of anyone in the area [who] will be displaced,” Holdwick said. “But if there are folks or businesses that need to [move], we have made it very clear that they have to comply with the relocation standards of the federal government. We’re not shortcutting anything. If there are folks that are in the area that need to be taken care of, that will happen.”

It’s unclear what Holdwick meant by “taken care of,” but when I pressed him for details about the land use and stadium-under-the-guise-of-development theory, he went on the defense. Asked why the city hadn’t explored other possibilities besides another publicly funded stadium — affordable housing or small businesses, perhaps — he echoed what officials and lawmakers have said time and again: “We worked together with Olympia because they were willing to make the commitment if everything lined up moving forward.”

By “if everything lined up,” we can safely assume he means $284.5 million in public money — a once-in-a-generation deal.

Our features are made possible with generous support from The Ford Foundation.

Bill Bradley is based in Brooklyn. His writing has appeared in The Daily, Bloomberg Businessweek, GQ.com and Vanity Fair, among others. Follow him on Twitter @billbradley3.