FanPost

Broke: Detroit's Bankruptcy And Its New Arena Complex

Flickr user CAVE CANEM (with rights reserved)

Joe Louis Arena has been the home of the Detroit Red Wings since December 12, 1979. While Red Wings players and fans alike have long called the riverfront arena home for the last three decades, it has been decided across the board that it is time for a brand new arena in downtown Detroit to host the Hockeytown faithful for the future.

There is one small problem that is standing in the way: the City of Detroit is broke.

For a city that once housed 1.8 million people, the 2010 census taken by the U.S. government shows a population of just over 700,000 residents. Auto makers bought out of union strongholds and into the global economy, decimating Detroit in nearly every category.

High unemployment lead to reverse urban sprawl; those who could afford to leave (the middle class), did, reducing Detroit's tax base. As if the situation was not bad enough, years of political corruption led to overspending and an impossible hole to climb out of. The State of Michigan had enough, and eventually took control of Detroit. Governor Rick Snyder declared a financial emergency and appointed an emergency manager, stating that the city has a $327 million budget deficit and faces more than $18 billion in long-term debt.

The once mighty capital of the automotive industry has hit what can be considered ultimate rock bottom, becoming the largest U.S. city to file for municipal bankruptcy in history on July 18, 2013 and it is not hard at all to see why. The city, in addition to its fiscal crisis, is facing a multitude of social issues. What happens from here on out? All parties will have to wait and see.

Detroiters are proud people. They love their home and together they still make up the 18th most populous city in the United States. The city is now "blessed" with a fresh financial start.

"So, you're going to take your rare opportunity and flush it down the drain by building a publicly funded arena complex, right?" Not so fast critical yet mostly considerate Blackhawks fans. There's more to this deal as a whole than one might think. Let us take a full and unbiased look, shall we?

The New Detroit Entertainment Complex

Fiscals aside, the approved project is going to include more than just a new arena. The Huffington Post obtained a statement from the Downtown Development Authority as to what the district will contain by its estimated completion date in 2017:

  • A 140,000 sq. ft. new mixed office and retail development on Woodward at Sproat St.
  • A new hotel-retail development with a 20,000 sq. ft. ground floor
  • Parking lots and other amenities
  • A 25,000 sq. ft. office and retail development along Woodward
  • Several parking structures with a total of 25,000 sq. ft. of retail
  • Renovation of the Detroit Life Building at 2210 Park Ave. for 3,645 sq. ft. of retail and 35 residential units
  • Renovation of the Blenheim Building at 81 W. Columbia St. for 1,833 sq. ft. of retail and 16 residential units
  • Renovation of the building at 1922 Cass for 70,000 sq. ft. of office space

This is what the complex outline would look like in the current scheme of the area outlined on Google Maps; the new Red Wings arena is highlighted in orange:

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The new arena at the corner of I-75 and Woodward is going to hold less than the 20,066 seat Joe Louis Arena, and the hope is to create a large "bridge" between the downtown and midtown areas.

Most recently evident in the construction of the Prudential Center in Newark, NJ, the idea is to impose positive externalities within the surrounding area of the arena by imposing a semi-regular flow of people. A fan may attend a Red Wings game and then walk around the surrounding area to either a bar or a restaurant for a quick stop before the trip home.

Official renderings of both the project and the arena have not yet been released to the public. However, based on the price tag, fans and citizens alike should be expecting something grand to go along with the almost certain hike in ticket prices.

Addressing Concerns About Funding For the Project

It is imperative that you take your "They're stealing money from schools and civil services" cap off here and just listen to the explanation, even if you hate numbers, and especially if you pay taxes in the State of Michigan.

"I know there's a lot of emotional concern about should we be spending the money," said Kevyn Orr, Detroit's emergency manager. "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."

Detroit's civil services have an average wait time of 54 minutes to respond to a scene, compared to the 11 minute national average. For what it's worth, a first grader could have probably pointed out that the city's money should go towards fulfilling its fiscal responsibilities and addressing its social issues such as skyrocketing crime rates and fires. Street lights are often cut off of the electrical grid to save money as well.

In case you missed WIIM Radio from July 24 in which the new arena was discussed, the State of Michigan will be issuing up to $450 million in bonds, not Detroit.

It should be noted that the overall financial picture is still extremely fuzzy. Some outlets report two-thirds public funding, while others report that Ilitch is paying the majority of the cost. The Detroit Downtown Development Authority, according to the Associated Press, has long been allowed to pay Detroit's general obligation bonds with $12.8 million that otherwise would have gone to schools throughout the state of Michigan. The general picture of the finances that seems to be surfacing is that roughly 44 percent of the funding will be public, and the rest will be paid for by Olympia Entertainment Incorporated, the developer owned by Mike Ilitch.

While plenty of politicians are arguing about the fact that the money should be used to help send money to public resources, many seem to forget the fact that a lot of Detroit's money has been poorly spent over the years, and it is going to take much more than just money from an arena project to help out with Detroit's social issues.

As a result of the bankruptcy, all parties will have to take a hit. The city has agreed to take a hit; the pensioners will almost certainly have to accept a lower payout. The city has over 100,000 creditors to pay back in one way or another, as if the picture weren't illustrated meagerly enough with just plain dollar signs.

It is also important to note that the DDA is a chartered institution not affiliated with the city's other institutions. The DDA is specifically in charge of procuring investments privately for the city as well as playing a major role in neighborhood revitalization, restoration, and construction. In short, this is an additional sum of money paid out by businesses (call it a tax if you want) but it is in a different category, meaning it will not be stealing money from the school system, trash collection, pension funds, police, or firefighters as many are arguing. Could the DDA have been disbanded to save money for other priorities? Sure. However, it can be argued that certain parts of Detroit would resemble slums more than they do at the present moment.

Public funding any sports venue construction is ill advised, however Governor Snyder defended using public money for this particular cause:

"This new entertainment district will be much more than a new arena for the Detroit Red Wings. This is a project that will help revitalize Detroit. This project creates another major destination point for residents and visitors alike that builds on prior investments along Woodward from Comerica Park and Ford Field to the new Whole Foods in Midtown. The Ilitch family organization is making an enormous investment in the city and state bond financing makes this project a true public-private partnership."

Detroit needs development and it needs a form of tourism of sorts, not more nonsensical political spending.

Let's not forget the lease that Olympia is paying will amount to roughly $11 million per year, as well as its individual taxes on events, all of which can go towards re-paying the bonds. The general population of Detroit cannot support Detroit's tax base alone, so Detroit will have to make its money off of entertainment taxes collected in its new found casino base as well as this new complex. It is also expected that Ilitch will sell the naming rights to the arena, which will also go towards paying the costs.

Take it like it is, the project is not stealing money from a city that cannot afford to deliver its basic services. End of story.

Benefits (Positive Externalitites) of the Project

The good news about the project is that it brings more than 8,300 new construction jobs to the downtown area and that the project is expected to create a bump in Michigan's economy worth about $1 billion. There is also a binding memorandum of understanding which states that at least half of the jobs created by building the project must be filled by permanent Detroit residents.

The finished product will add 400 permanent jobs to the Detroit economy, as well as the opportunity for entrepreneurship in the form of restaurants, bars, and clubs.

This is going to fit into the theme of Detroit re-branding itself as an entertainment capital rather than just an industrial powerhouse. This complex will more than likely now give a reason for people to spend a weekend in Detroit. For example, Andrew Shaw can bring his blow up doll wife and have fun for a weekend in Detroit and then enjoy a concert involving some weird and obscure metal band at the new arena. Maybe there is a convention for Pokemon enthusiasts going on in Detroit and the citizens of Detroit will be exposed to Pikachu costumes as they buy Johan Franzen and Henrik Zetterberg jerseys and spend their money at the Hockeytown cafe.

In a general sense, Microeconomics dictates that marginal social benefit exceeds marginal social cost in the form of revenue generated for the surrounding area.

Now JJ can meet Graham for coffee before a Wings game and talk about his favorite Maple Leaf, Tyler Bozak.

Bottom line, it will create a spike in tourism, and people will go to the complex and spend money in one way or another. The City of Detroit needs money spent within its limits, and this project will create a new opportunity to do exactly that.

For the Fans

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Although the season starts in April for plenty of locals, Wings fans are a loyal bunch. They have been, even well before the playoff streak began.

Detroit possesses one of the most profitable franchises in the league, but it's more than just the intrinsic value that comes with being a member of the "Original Six." Detroit not only sells tickets, but merchandise, and that will not change.

Going forward, the franchise is in a transitional period. There is an infusion of talent and the franchise for all intents and purposes has become a very young team once again. Soon enough, there will be a brand new core at the helm of the team (no pun intended) as others come and go. The new arena will reflect that image and bring a whole new level of excitement to the city and region that is in desperate need of good news.

The Red Wings and their fans can now have a new home to be proud of; a place where they will not be trapped on the concourses ten minutes into the second period or have to climb stairs to use restrooms. Ken Daniels can now call games from a press box that is meant to be there. Pierre McGuire can now stand in a space between the benches wider than the children's car seat he should be sitting in. Then again, maybe the construction workers will do us all a favor on that one.

The new arena will be paid for, opened, and loved, one way or another.

This is a fanpost written by a WIIM community member. The views and opinions expressed here are that member's and do not necessarily reflect the views of the site itself.

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