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How to subsidize a sports arena in a bankrupt city


In 2014, Detroit was still grasped by the largest municipal bankruptcy in US history. Yet contemporaneously, almost $400 million in public money was allocated to fund Little Caesars Arena and the District Detroit, an ambitious adjacent real estate development.


So how do you subsidize a sports arena in a bankrupt city? Social Science Quarterly recently published my academicized take: https://onlinelibrary.wiley.com/share/author/UMBPBENHW9SAD8XXHNNY?target=10.1111/ssqu.13424



Little Caesars Arena and the Detroit skyline


The short version is that emergency management allowed for a window to aggressively transform Detroit's debts, assets, revenue sources, and potentially, its future prospects. 


The city-owned riverfront site of Joe Louis Arena had value to debtholders. To free up the site, the Red Wings needed a new home. Enter their owners, the Ilitch family (of pizza fame). The Ilitches had been assembling land for decades north of downtown for an arena, leaving their holdings (and the neighborhood) blighted to reduce acquisition prices until they could obtain public subsidies.


The bankruptcy was an opportunity to sell revitalization, and the Ilitches presented the District Detroit. With renderings of 2,000 residential units, retail, and walkable urbanism, the vision of transformation beyond a hockey arena was sufficiently "hot-n-ready" to persuade state decisionmakers, namely Governor Rick Snyder (recall Flint).


District Detroit: The Promise


Ok, but the city is still bankrupt and the GOP legislature certainly didn't want to pay for Detroit. So where did the money come from? The only viable source was tax increment from Detroit's Downtown Development Authority. Since the late 1970s, all new (incremental) property tax revenue from downtown had been captured and reinvested in localized capital projects. The idea was to channel this source protected from the city’s creditors to the arena and District Detroit.

District Detroit: The Reality


For the numbers to work, however, state legislation was needed to include school taxes. Effectively, the arena deal was largely premised on a shell game redirecting revenues that would otherwise retire debt from Detroit's also bankrupt school district. While the state backstopped lost per-student funding, the funnelling of school tax increment to the arena meant that DPS bonds would take longer to retire, delaying capital improvements to Detroit's dilapidated school buildings.


The now permanently closed Stephens Elementary School in Detroit


As for the District Detroit, the Ilitches were able to maximize their real estate subsidies through building a few parking garages. Almost a decade later, the District largely languishes as surface parking, as the Woodward corridor has experienced some of the country's most intensive development.


Surface Parking in the the District Detroit with LCA and new garages in the background


While the District Detroit redux, a partnership with Dolphins-owner Stephen Ross, may or may not materialize with up to $797 million in new subsidies (this time contingent on building something other than garages), the Ilitiches still collect parking revenue while watching neighboring construction appreciate the blight of their own creation.


And that is how you subsidize an arena in a bankrupt city.

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