The arena itself, the first — and as of now the only certain — phase of the entertainment complex, is expected to cost $440 million in upfront capital expenditures. This entire amount will be financed by 30-year, tax exempt, revenue bonds floated by the Michigan Strategic Fund that is statutorily authorized to extend the state’s credit line to “worthy” private projects.
Who will service these bonds? The official story is that the Detroit Development Authority, a government agency that supports downtown business, and Ilitch himself will “share” the responsibility. Both sides, however, will stick it to taxpayers and residents.
The DDA will contribute somewhere from $15 to $17 million annually toward the bond payments. Of this, $13 to $15 million will come from property taxes originally imposed on area businesses to finance a school construction project. The school debt has been retired but the DDA has continued to collect the one-mill tax. The money is supposed to go to the Michigan School Aid Fund, but the Republican-controlled state legislature and Republican Gov. Snyder passed a law in December authorizing the DDA to divert this money to the arena.
In other words, money originally meant for poor inner city children will go into the pocket of a billionaire — and that too when the city is in bankruptcy and creditors are receiving massive haircuts. If the tax won’t be eliminated (Detroit is the 9th highest taxed city in the country) or given to schools, surely fighting crime (Detroit is the murder capital of the nation) or installing street lighting (45% of the city has no lights) or picking up trash would be better uses for it?
The DDA has always been something of a slush fund for the business cronies of local politicos. But diverting hundreds of millions of dollars into a project that’ll ultimately benefit mainly one business takes crony capitalism to a whole new level.
Mr. Hilfinger notes that his agency canvassed local businesses before proceeding and found only excitement, not opposition, because a revived downtown would boost everyone’s bottom line. It is not clear if included in the sample were folks like the late Detroit Pistons owner Bill Davidson who constructed a basketball arena in Auburn Hills, a Detroit suburb, totally out of pocket.
Ilitch’s side of the bargain is even more problematic.
The official line is that his company will contribute $11.5 million annually — or about $35 million over 30 years — of the cost of servicing the bond. This is a pittance compared to taxpayers’ contribution. Even this consists simply of lease payments -- something that he would have to pay no matter where he parked the Red Wings — and involves nothing extra to defray the construction cost of the new facility.
Even worse, Ilitch, who is notorious for driving a hard bargain, insisted on leasing — instead of owning — the facility because, Crain’s Detroit Business reports, that that would save him $1 million annually in property taxes. Far from rebuilding the city's tax base, the arena will deplete it even further. And since this lease will be renewable every few years, should the Red Wings’ division ranking drop and ticket sales plummet, Ilitch could walk away from the arena without liability. Taxpayers, however, will have no such luck.
Hilfinger points out that Ilitch has also pledged $200 million toward the “ancillary development” that’s part of the entertainment complex — and some unspecified amount of (currently worthless) downtown property he’s been sitting on. When everything is added, Ilitch’s contribution will add up to 56 percent and taxpayer contribution 44 percent, Hilfinger says.
But there are at least two big problems with this claim.
One: This “ancillary development” won’t begin for several years. Should the downtown show few signs of revival after the arena goes up, it is hard to see how authorities could insist that Ilitch and other investors continue to sink money into it, even though Hilfinger says they’ll