New $444 million hockey arena is still a go in Detroit
By Chris Isidore@CNNMoneyJuly 26, 2013: 9:16 AM ET
NEW YORK (CNNMoney)
Detroit's financial crisis hasn't derailed the city's plans to spend more than $400 million in Michigan taxpayer funds on a new hockey arena for the Red Wings.
Advocates of the arena say it's the kind of economic development needed to attract both people and private investment dollars into downtown Detroit. It's an argument that has convinced Michigan Gov. Rick Snyder and Kevyn Orr, the emergency manager he appointed to oversee the city's finances, to stick with the plan. Orr said Detroit's bankruptcy filing won't halt the arena plans.
"I know there's a lot of emotional concern about should we be spending the money," said Orr. "But frankly that's part of the economic development. We need jobs. If it is as productive as it's supposed to be, that's going to be a boon to the city."
But critics say the project won't have enough economic impact to justify the cost, and that it's the wrong spending priority for a city facing dire economic conditions.
Detroit city services are already stretched extremely thin. On average, police take about an hour to respond to calls for help, and 40% of street lights are shut off to save money.
"If you want people to live in the city, and not just visit to go to games, you have to invest in schools, in having the police to respond to calls," said Gretchen Whitmer, the Democratic leader in the state senate. "There are so many investments that should trump a sports stadium."
The state legislature approved the taxpayer funding for the arena in December. The controversial vote split Detroit's own legislative delegation. Whitmer argues that the matter should be reconsidered given the city's worsening finances.
"If the vote was held today, since the bankruptcy, I wouldn't put my money on it passing," she said.
The arena will be paid for with a $450 million bond issue that will be repaid over the next 30 years. Taxpayers will be paying almost two-thirds of the cost of the arena -- $283 million -- and private developers will cover the rest. Including interest, it's projected that there will be a total of $444 million in taxpayer funds spent on the project.
Additionally, the developer has committed to spending another $200 million to build retail, office, residential and hotel space as part of the project.The construction is expected to create about 8,000 construction jobs with work due to start next year.
Most of the tax money going into the project would otherwise be going into Detroit schools,which are also under state control due to their dire finances. But the lost money is slated to be made up for by the state government according to Michigan's school-funding formula.
"The schools won't lose a dollar," said Robert Rossbach, spokesman for the Detroit Economic Growth Corp., the non-profit agency overseeing the project. "It was designed to have minimal impact on city of Detroit operations."
Mark Rosentraub, a University of Michigan professor and an expert on the economic impact of sports teams, did a study for the arena developers, and estimates that it would create more than $1 billion of direct spending in Detroit during the next 30 years. He said many stadium and arena projects have minimal impact on local economies because they're already thriving or because of poor location.
But he argues that this one -- in a depressed city next to football and baseball stadiums -- will encourage a lot of private investment in restaurants, bars and other entertainment venues.
The Joe Louis Arena where the Red Wings now play is antiquated by modern arena standards, and is relatively isolated from the downtown area where the new arena is to be built.
"The problem behind the financial issues of Detroit has been a flight of capital to the suburban areas," he said. "We have to bring foot traffic and investment back to Detroit. This is exactly what it needs."
Typically, a team threatens to move out of a city in order to get government officials to agree to a publicly financed new home, but the Red Wings have not made that threat.
Andrew Zimbalist, a Smith College economics professor and a sports business expert, said the Red Wings are one of the few profitable teams in the National Hockey League, and there is no chance they would want to leave Detroit, even for the suburbs.