CHICAGO -- Michigan Gov. Rick Snyder touted the state’s move to issue up to $450 million of private activity bonds to finance a new hockey arena and entertainment district in downtown Detroit, saying the project will help revitalize the bankrupt city.
“This is part of investing in Detroit’s future,” Snyder told reporters Wednesday afternoon after a state board approved the borrowing unanimously.
“Detroit is going to be the value place to invest in -- that’s the message we need to get across,” the governor said. “As we stabilize the city government finances, Detroit will move to a place where ... it will be recognized across the world as a place of having great value and a place to invest.”
Snyder has wholeheartedly endorsed Detroit Emergency Manager Kevyn Orr’s restructuring proposal, which imposes massive haircuts on Detroit general obligation bondholders. Michigan’s approval of the bond piece of the hockey arena financing came just days after Detroit filed for Chapter 9 bankruptcy protection, a historic move that would make it the largest bankrupt city in U.S. history.
The $650 million sports and entertainment project, centered around a new arena for the Detroit Red Wings hockey team, is estimated to include $365.5 million of private dollars and $284.5 million of public funds. The public funds will come from incremental property tax revenue currently captured in a downtown development district.
Opponents say the city, which has closed more than half of its parks, should not be tapping already thin property tax dollars to essentially subsidize a private sports team and stadium during a bankruptcy proceeding in which the city proposes to impair pensioners and bondholders. Others note that the downtown development authority that captures the property tax revenue is allowed to use revenue that is raised under a school levy. Orr, the Detroit emergency manager, has said that the city’s bankruptcy should not affect the development.
The board of the Michigan Strategic Fund, which approves private activity bonds for economic development projects statewide, gave the green light Wednesday to an inducement resolution for the issuance of $450 million of 30-year PABs for the project.
The $650 million development includes a new 18,000-seat arena for the Red Wings hockey team and a 45-block adjoining entertainment district. The new stadium, which carries a $450 million price tag, would replace the Joe Louis Arena. The adjacent entertainment district is estimated to cost $200 million.
The city will partner with Olympia Development of Michigan, a real estate company owned by the Ilitch family, which owns the Red Wings, baseball’s Detroit Tigers, and the Little Caesars pizza chain. The proposed development would expand the city’s current business district and transform a blighted corridor to connect it with the city’s midtown, according to documents filed with the strategic fund.
Snyder said the new project represents the kind of public-private partnership that will be important to driving Detroit’s future growth.
“The Ilitch family organization is making an enormous investment in the city and state bond financing makes this project a true public-private partnership,” Snyder said in a statement.
The financing has been months in the making and required state legislation that allows Detroit’s Downtown Development Authority to tap up to $15 million in incremental property revenue collected from its downtown district. The Michigan Strategic Fund would issue the bonds.
The bonds would be backed by a pledge by the downtown development authority of at least $12.8 million a year but not more than $15 million a year from property taxes, as well as a contribution from the authority of $64.5 million from other tax revenues. Olympia Development will make an annual payment of $11.5 million. Wayne County may also make a contribution.
In addition to the debt service, the revenue will fund a debt-service reserve, coverage reserve and maintenance and repair reserve.
If Wayne County contributes, the authority may transfer its ownership to the Detroit/Wayne County Stadium Authority or another entity, the documents said.
Outside the arena, ODM will commit at least another $200 million for the 45-block entertainment area. The DDA pledged to contribute up to $62 million over 30 years in revenues in addition to those pledged for the bonds to support the additional projects.
The city, the Economic Development Corporation of the City of Detroit and the ODM will transfer land to the downtown authority for the project.
The DDA will own the arena and will enter into a 35-year concession agreement with ODM to manage and operate the complex.
ODM will be responsible for any cost overruns.
“We are excited by this catalyst development project’s potential to positively impact the economy, create thousands of jobs and be a driving force in the growth of our city, region and state,” the Ilitch organization said in a presentation to the strategic fund board.
ODM told the state board that other cities have been transformed by major downtown developments, citing Los Angeles, San Diego, Indianapolis, and Columbus, Ohio.
The city, the board of the DDA and other bodies still need to approve the plan.