Long before it was named after the Ilitch family's pizza chain or the Pistons agreed to join the Red Wings in playing there, the new downtown arena was expected to cost $450 million.
Since those plans were revealed in 2013, the cost to build Little Caesars Arena has nearly doubled to just under $863 million. The new price tag comes with an increase in public funding, too, from an original estimate of $262 million to $324 million, according to a Detroit City Council analysis in May.
"Originally, four years ago at $450 million, this was just kind of an arena, another Joe Louis Arena or another generic one," Glen Long, CFO and interim president/CEO of the Detroit Economic Growth Corp., said recently in an interview with the Free Press. "The Ilitches, Olympia, the Red Wings decided to put a lot more enhancements in them and to really make it a complete, state-of-the-art facility."
The $324-million public contribution to the arena's construction represents the bulk of taxpayers' commitment to the project. The only other public support for the District Detroit — the 50-block section of the city including the arena and other new office, retail and residential spaces — is a $74-million payment the Ilitches' development firm receives if it causes at least $200 million in new development near the arena.
Despite the arena's rising construction costs, city leaders persistently tout its projected economic development benefits — thousands of jobs and spin-off development projects.
Understanding the arena's final cost — particularly the public's contribution — will be essential to determining Little Caesars Arena's long-term economic impact in Detroit.
"Public dollars should be public information, so it's only fair people see how their money is being transferred from many of us to a few," said Michael LaFaive, senior director of fiscal policy for the conservative Mackinac Center for Public Policy.
The $324-million public subsidy comes from taxes captured by the Detroit Downtown Development Authority through a tax increment financing plan.
The taxes will be captured until at least 2051 and will be used to pay off bonds issued to pay for Little Caesars Arena's construction. The overall cost of paying off the bonds, including interest, is estimated at $713 million, according to DDA officials.
The public obligations for the arena include:
- $250 million in DDA bonds issued in 2014 for the arena.
- $34.5 million in DDA bonds issued this year to pay for accommodations at the arena for the Pistons and NBA games.
- $4.85 million in closing costs and debt service reserves.
While not a future obligation of public funds, the DDA already contributed $34.75 million to the project in taxes it captured between 2010 and 2014.
The DDA also is on the hook for the $74-million reimbursement to the Ilitches' Olympia Development of Michigan if Olympia follows through on a commitment of at least $200 million in additional development surrounding the arena within five years of its completion.
The reimbursement was worth $62 million under the arena district's original plans, but it was increased to $74 million when the tax increment financing plan was updated this year to include amendments related to the Pistons' move into the arena.
DDA officials said the increase to $74 million was based on an agreement between Olympia and the Michigan Strategic Fund, the state entity that facilitated the arena's public financing. "The state, as they were working out some of the final details, agreed to allow Olympia to increase that incentive to Olympia from 62 to 74," Long said.
A spokesman for the Michigan Strategic Fund said the increase to $74 million was previously expected, but he did not provide supporting documentation to back up his claim as of Wednesday evening.
Nearby development worth $175 million already has been approved toward the $200 million threshold that would trigger the $74-million reimbursement. That includes a new Little Caesars corporate headquarters at Woodward and Columbia Street -- with an investment estimated at $150 million -- and a $24.4-million, seven-story parking structure at Henry Street and Cass Avenue with about 530 parking spaces and retail on the ground floor.
Olympia Development is covering about $539 million of Little Caesars Arena's $863 million total cost.
The arena district does not include a new $83-million practice facility and corporate headquarters for the Pistons in the New Center area. That deal, approved by City Council in June, includes about $20 million in tax incentives.
The DDA owns the arena, which will be exempt from property taxes, and leases it to Olympia. Olympia will keep all revenues related to the arena's operations under its contract with the DDA.
Revenues from the arena would include proceeds from ticket sales; food and beverage sales; souvenirs; parking; radio and television broadcasts; suite and luxury box fees; signage and advertising sales; and the naming rights to the arena.
Little Caesars Arena's cost has risen steadily since the project began. After initial estimates put the cost at $450 million, premium additions including more visual displays, an outdoor plaza and so-called gondola seating to get some fans closer to the action increased the cost in early 2016 to $627 million.
The arena will have about 20,000 seats, an attached parking garage with 1,100 spaces and about 40,000 square feet of retail space, which will include a team store and restaurants.
While Olympia decided to pay more than initially planned for certain additions, the city's politicians should have resisted chipping in more tax dollars to pay off $34.5 million in bonds to pay for the Pistons' move into the area, said Robert Davis, a former Highland Park school board member who has challenged the arena's public funding in federal court.
"It's sad that you have certain elected officials selling out the citizens," Davis said. "They're not fighting for or standing up for the best interests of the citizenry."
Although the public subsidy's dollar value has increased since the arena was announced four years ago, it makes up a smaller chunk of the overall cost, said Long, of the Detroit Economic Growth Corp.
"When this originally started, you were talking about a 60-40 split the wrong way with public money being dominant," Long said. "But now with the increases and the enhancements, and we only had to come up with another $34 million in order to get the Pistons down here as well. Now it's 38% public and 62% private."
Paul Hughes, chairman of an arena neighborhood association that periodically meets with Olympia, said he has been impressed with the arena's construction.
"Considering the amount of money this is costing, it needs to be right," Hughes said.
