Public Finance Presentation
By: T.J. Auer
Detroit/Michigan continues local
government tradition of
subsidizing sports stadia
Michigan Not Detroit?
Michigan is issuing “$450 million in 30-year tax-exempt private activity bonds
to pay for construction of the arena itself.”
58% of repayment - Downtown Development Authority - $261.5 million
42% of repayment - Olympia Entertainment - $188.4 million
http://www.crainsdetroit.com/article/20131213/NEWS/131219910/state-would-demolish-joe-louis-under-plan-for-new-hockeyarena
http://www.freep.com/article/20140129/NEWS01/301290158/Red-Wings-arena-Detroit-land
Bonds are sold by the state to raise funds, funds not actually issued by state
or city. So, who is paying for the stadium?
Private investors purchase the bonds, assume risk for future gain.
Since private interests purchase bonds many claim these types of
arrangements are distinct from public subsidy….
How TIF Works
• Expanded Tax Increment
Finance Area
• Theory – the new stadium
development will increase
business activity and raise
surrounding property values
• Practice – Revenue Bonds
issued (different from general
obligation bond)
– A portion (increment) of the
resulting property tax is used to
repay bond + interest
Stadium
T
Site
TIF Area
Taxpayers Pay Risk Free
Slope would equal
Mill Rate
Bond
Repayment
Tax Revenue
Actually Revenue
Usable Revenue
Property Values
Site Assembly
• Olympia Development (division of Ilitch owned Olympia
Entertainment) spent $50 million purchasing land for
approximately half the development site
• Detroit expected to transfer land for other half of the
development
• Detroit Downtown Development Authority will be the
property’s owner – is this quasi-public body tax exempt?
• Ownership is an important component of this deal
• Current question in media regarding taxes for Joe Louis Arena
Detroit loses potential revenue from land sales
& possibly future tax revenue
Benefits to the City
•
•
•
•
•
Expected 400 more jobs than Joe Louis Arena
Construction and demolishing jobs
$200 million dollar spin off development would not be owned by DDA
Potential increases in property value in and beyond TIF area
Commitment to a Neighbourhood Advisory Committee – influence/power
not yet set
Costs
• Land being assembled for the development site
• Demolition costs of Joe Louis Arena – cost to state
• future demolition or repurposes of new arena – Red Wings lease is 35
years
• Property tax from stadium and property tax increases that go towards
bond repayment
• Maintenance and Repair – DDA and Olympia share
Why Do Cities Make Stadium Development
Deals?
“We are recruiting and retaining talent, and it’s important that we have a
competitive facility in order to compete in the National Hockey League,
We need your support on this project to keep our team competitive.” –
Ken Holland Red Wings GM
• Artificial Scarcity – There are more large cities than teams
• the supply of teams is regulated by the leagues
• the geographic distribution is controlled by the league
Is this a good deal for Detroit?
Is it a better or worse deal for Detroit given its current
distressed state?
Sources
• http://www.freep.com/article/20140129/NE
WS01/301290158/Red-Wings-arena-Detroitland
• http://www.crainsdetroit.com/article/201312
13/NEWS/131219910/state-would-demolishjoe-louis-under-plan-for-new-hockey-arena