Bloomberg News

Detroit’s New Hockey Arena Gets Partial Approval From Council

December 20, 2013

The Detroit City Council took steps toward building a $450 million hockey arena for billionaire Mike Ilitch’s Red Wings with state-issued bonds backed by local property taxes.

The council today approved two of three measures that would seal the project and funnel real estate taxes toward payment of the bonds. It backed enlarging a tax district and allowing the Downtown Development Authority, which would own the arena, to collect the levies. Lawmakers balked at a plan to transfer city-owned land.

The proposed 18,000-seat venue has raised questions about spending public money on professional sports as the city goes through the largest U.S. municipal bankruptcy. The project planned just north of downtown also includes a privately funded $200 million development near the arena, which would also house concerts and other events.

The development authority collects the taxes that would back the 30-year bonds to finance the arena. The securities would be issued by the Michigan Strategic Fund, a state agency that promotes economic development.

The votes followed objections by some residents who called the arena project a gift to Ilitch, owner of the National Hockey League team.

A final deal needs stronger guarantees that will create jobs and benefits for Detroit residents, said council President Saunteel Jenkins. The rest of the project plan must be presented for approval Feb. 4, to a new council elected in November.

Red Wings

Under the proposed deal, no city government money would be used. Michigan would cover the cost of diverting $12.8 million in local tax revenue each year toward bond payments.

The Red Wings would pay $11.5 million a year, and the development authority would pitch in $2 million annually. Combined state and private money would account for 86 percent of about $26 million annual debt payments.

Although Detroit is under control of state-appointed Emergency Manager Kevyn Orr, the council has power to approve the arena deal, said Orr’s spokesman, Bill Nowling. The plan doesn’t require approval of U.S. Bankruptcy Judge Steven Rhodes, who presides over Detroit’s case, Nowling said.

It’s ludicrous and embarrassing to use tax money for an arena that will turn profits for Ilitch, said Samantha Peeling, 26, one of several residents who spoke at a two-hour hearing.

Residents Speak

“Nobody will move to a city just to watch a hockey game,” said Peeling, who said she moved from a suburb to an apartment near the proposed arena site in April.

Others said arena and surrounding development would create much-needed jobs.

“This is an opportunity for the city to grow,” said Ken Harris, 39, a Detroit resident and president of the Michigan Black Chamber of Commerce.

The new 650,000-square-foot arena would replace the 34-year-old Joe Louis Arena on the riverfront, where the Red Wings have won four Stanley Cup championships since 1997.

Planners say it would create more than 13,000 jobs and a $1.8 billion benefit for Detroit and the state. The project near the city’s midtown district would add bustle in a corridor near professional baseball and football stadiums.

The area has experienced an influx of businesses and residents, and is considered an axis for the city’s economic revitalization. The new arena would enlarge a core entertainment district where a new light rail line also is planned, said Republican Governor Rick Snyder.

Snyder Support

“It could really be important in terms of overall economic development and connectivity within Detroit,” Snyder said in an interview in Lansing on Dec. 18.

The Red Wings owners would account for 56 percent of the cost of the hockey arena and the $200 million commercial and residential development near the arena.

Olympia Development of Michigan would manage the arena and have naming rights. The company is the real estate arm of Ilitch Holdings Inc. which is owned by Mike Ilitch and his wife, Marian, and includes the Red Wings, pizza chain Little Caesars Enterprises and the Detroit Tigers baseball franchise.

The Ilitch family has been a catalyst for areas near downtown Detroit since 1987, having moved the Little Caesars headquarters to the city from a suburb. Their companies have spent more than $800 million on developments, including building Comerica Park, home of the Detroit Tigers Major League Baseball team; restoration of the Fox Theater, restaurants and the MotorCity Casino.

Detroit Lions

A combination of public and private money paid for Comerica Park and adjacent Ford Field, home of the Detroit Lions National Football League team. In 1997, about $80 million in 30-year, tax-exempt bonds were sold to pay for Comerica Park; the Detroit Tigers paid the rest of the $300 million stadium.

Revenue for the bond payments come from designated taxes on rental cars and hotel rooms in Wayne County, which included Detroit.

The Lions, owned by William Clay Ford Sr., used corporate donations to pay $420 million of Ford Field’s $500 million cost, according to Crain’s Detroit Business. Detroit, Wayne County and the state paid the rest. The 65,000-seat domed stadium opened in 2002.

To contact the reporter on this story: Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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