The Malik Report
by George Malik on 12/13/13 at 11:59 PM ET
As Crain's Detroit Business's Bill Shea was essentially live-tweeting the meeting between the Detroit Economic Growth Corporation's Downtown Development Authority and Ilitch Holdings today, one Tweet stood out:
This isn't surprising--it's long been assumed that Joe Louis Arena would be of no use to the City given that the follow-on rink replaces it, and given the possiblities of expanding Cobo Arena's footprint and/or some incredibly valuable waterfront property that just happens to be cripplingly separated from the rest of the city by Cobo, the end of the M-10 freeway and the industrial largesse that dominates the west-of-Cobo riverfront.
So the Joe will make the ultimate sacrifice to help repay part of he "economic development" pay-back for the follow-on rink's public funding, and WXYZ reports that the city won't have to pay to tear it down:
The state says it will pay for demolition under the deal. However, the deal still needs city council's stamp of approval.
Otherwise, as Fox 2's Robin Murdoch, the DDA and the Ilitches did what is necessary to come to the City Council next week hoping that both parties can "sell" expanding the DDA's footprint by 45 blocks (that number's been bumped up from 40, and a "city block" is not an insignificant amount of land--ten city blocks usually add up to one mile), incorporating the Foxtown and Cass Corridor areas where the rink will be built to the area eligible for the dedicated economic development funds which the DDA collects from downtown businesses--the sides came to an agreement regarding the parameters of the construction and management of the rink:
A management deal for a planned sports arena and entertainment complex just outside downtown Detroit also says the state will pay for the demolition of aging Joe Louis Arena.
The Detroit Downtown Development Authority approved the deal Friday with Olympia Development.
The state says it will tear down the -year-old Joe Louis Arena after the NHL's Red Wings move to the new complex. Olympia Development is owned by the Ilitch family, which also owns the hockey team.
The new facility would seat 18,000 for hockey and other events.
City officials still have to approve expanding the development authority district boundaries.
The Michigan Strategic Fund would issue $450 million in bonds to build the events center. The bonds would be repaid over 30 years from public and private money. The city council is set to discuss the issue at its meeting this coming Friday.
Fox 2 also filed a video report...
And WDIV's Rod Meloni focused upon the nature of the funds which will subsidize 44% of the rink and economic development's construction costs:
"No funds are being used from the general fund. Most of the money is not even coming from the city, not even the DDA," said nonprofit Detroit Economic Growth Corporation President George Jackson.
The DDA is the Downtown Development Authority. It is a separate legal entity from the city, a special business promoting tax authority that will own the new Red Wings stadium while the Wings make all the money from the concessions and tickets.
Buildings inside the DDA's boundaries pay their property taxes to the DDA, not the city.
The DDA then reuses that money to develop the properties within its boundaries. It's been around for a generation and it intends to use nearly $300 million already collected.
It makes it possible to pay back borrowed money-bonds really over the next 30 years.
The vast majority of this 45 block project will be paid for with private money, the Ilitch organization putting up $200 million. Public money will account for about 45 percent of the project.
"I think the key thing here is more growth, that we're not adding to the city's debt, which is what a lot of cities do when they build stadiums," said Jackson.
The Detroit Free Press's John Gallagher helps flesh out the balance of the construction and rink management agreement...
Once the Ilitches contribute $11.5 million a year to help pay off the construction bonds, plus maintenance and security costs, Olympia will keep all revenues from the arena operations, including ticket sales, naming rights, and other revenue.
Brian Holdwick, executive vice president of the DEGC, said that was fair because the Ilitches also are committing to raise $200 million in private funds for spin-off development in an adjacent mixed-use residential, retail and entertainment district.
“We’re real excited about this,” Holdwick told the DDA board during its meeting.
Public comment before the DDA vote expressed concern over the deal. Francis Grunow, with the nonprofit Corridors Alliance representing residents and businesses in the greater downtown, called for a firm community benefits agreement to be written into the deal. The management agreement as written calls for Olympia to comply with city ordinances on using local contractors, and it said Olympia would make “commercially reasonable efforts” to hire local residents for the work.
Grunow said that did not go far enough in addressing a host of community concerns on environmental safeguards and other issues.
And John Lauve, a resident of Holly, told the DDA board that the deal suffered from a lack of transparency. “It's another Wayne County Jail,” he said.
I know that many of you disagree rather vehemently with this agreement, but I can at least tell you that the DEGC and the DDA make both Wayne County and the City of Detroit itself look like the organizations they are in terms of responsibly spending public funds to build things--like farces who only care about stuffing the pockets of the friends, business associates and construction contractors associated with City and County legislators, and ofthen the legislators themselves.
The DDA actually builds things and builds them on-time and on-or-under budget. The City and County double and triple construction budgets and blow past deadlines.
If you're going to make a deal with the devil, you may as well make an efficient and expediently-managed one.
Although approved by the DDA board, the management agreement with Olympia will take effect on or before April 1 only if multiple other details can be worked out, among them City Council agreement. Among others, the State of Michigan must put into writing its agreement to pay to raze Joe Louis Arena once the Red Wings move out, and the city and the Ilitches must settle any issues related to Olympia’s obligations under its existing lease at Joe Louis.
The City Council is scheduled to meet Friday to consider legislation related to the project, including a request to expand the DDA’s boundaries to capture the necessary property taxes to help pay off the arena’s construction bonds.
City Council President Saunteel Jenkins has said the council wants to review the agreement between Olympia and the DDA before it votes on expanding the borders. Jenkins was unavailable for comment Friday evening after the DDA approved the deal.
That's going to be the sticky wicket--this is still the outgoing City Council, the one whose members were elected to at-large positions and were mostly elected as the last Council sitting before the City went into municipal Chapter 9 bankruptcy, and they're going to want concessions that directly benefit them.
Regardless of the council’s decision, emergency manager Kevyn Orr can approve the DDA expansion and other legislation needed to advance the project.
Supporters of the deal were asked whether they are confident City Council is on board.
“We are going into this with the full expectation that this project will come to fruition,” answered Jackson, of the DEGC.
It's likely that we're going to find out more about the "perks" that the DDA and Olympia are planning on affording the City and County next Friday.
The Detroit News's Louis Aguilar also discussed the funding involved...
The 650,000-square-foot, 18,000-seat multipurpose arena is slated to be built on a blighted patch of Woodward, about four blocks north of the Fox Theatre and Comerica Park. The other $200 million in development would create residential, retail and office space. The new district generally reaches from Grand Circus Park to Charlotte between Woodward and Grand River.
About $367 million, or 56 percent, of the entire project would come from private investment. About $283 million, or 44 percent, in public investment would come through existing economic development funds requiring no new taxes.
The DDA would own the new arena. Olympia would operate it for 35 years, with 12 five-year renewal options.
That's important because the DDA owning the facility exempts Olympia and the Ilitches from property taxes and other taxes that would cut into their revenues if they were both owners and operators of the facility.
This summer, the state approved the sale of bonds to construct the arena. The Michigan Srategic Fund approved the sale of $450 million in 30-year tax-exempt private activity bonds.
Earlier this month, The Detroit News revealed Olympia has paid at least $48 million in land deals and own nearly half of the 45-block area where the entertainment district is planned, according to a city document. Much of the property is in the Cass Corridor neighborhood, just north of downtown. Other parcels are clustered behind the Fox Theatre, which also is headquarters of Little Caesars.
This part is equally important, especially if you despise this deal:
The project will use tax dollars from a budget and revenue stream that is not part of the city’s general revenue fund, which means it’s not money impacted by the city’s bankruptcy filing. The special tax pot by the DDA has been in place for more than two decades and legally can’t be used for anything other than economic development in the designated area.
So yes, I would like to see the money used for other things, and yes, you would like to see the money used for other things, but it cannot be used for other things.
And do you want to know who approved the DDA and DEGC's diversion of property taxes toward economic development, and wrote it into law?
The City of Detroit, Wayne County and the State of Michigan. Because this is a law we're talking about, and given that we're talking about a two-decade timeline, we're talking about people like Wayne County executive Bob McNamara, Mayor Coleman Young, and if we're talking about governors, we're back to the William Millikens and James Blanchards.
Does that make any of this better or less "wrong?" No--this kind of "the way the world works" business stuff is something you make peace with, something you rationalize and something you reconcile, but come on now, my soul is under lease to Ilitch Holdings, but I don't feel particularly good about the concept of $450 million in funds that could be bette spent honoring the obligations to the city pensioners who are about to be hoisted out on their ass because the Youngs, Archers and Kilpatricks of the world used their pensions as collateral, never mind using the money to restore city services, improve education, make the city a safer place, etc. etc....
But if we're going to engage in vociferous criticism and finger-pointing, let's point those fingers in the right direction, and if we're going to try to "come to terms" with this deal-making because there are long-term positives, even if those positives are mostly for "those who've got billions in the bank" over "those that need the help," let's understand who the principals are here.
In the 90's, when the DDA and DEGC really started to get to work fleshing out the footprint that Mike Ilitch had made in the Foxtown area, Campus Martius did not exist, the Compuare building did not exist, Comerica Park and Ford Field did not exist, GM was not headquartered downtown, Rock Financial and Quicken Loans weren't downtown, the casinos weren't around and white people going downtown still came to an area even natives found had "good parts" and places you needed to "dash through" to avoid crime.
Twenty years later, all of that "stuff" is in place mostly because the DDA and DEGC sold the city to business leaders and suburbanites, because the DDA and DEGC served as governmentally and business-developmentally functional analogues to the clusterfucks that were and are the City and County, and twenty years later, the "scariest" place left downtown is the footprint of the rink itself..
Does any of that make this any less "bad" or "wrong" or "unjustifiable?" No, but let's also be honest that Mr. Ilitch is 84, and this is going to be his "legacy project." He and his family and his economic empire don't plan on letting the construction of the rink spiral out of control in terms of deadlines.
As Aguilar points out, the Joe's demolition actually serves as something of a deadline for the rink-building timeline, too:
The state of Michigan has verbally committed to pay for tearing down the downtown area, but details are still being worked out, city officials said Friday. It could be razed around 2017 and the reason is straightforward, officials explained.
“It’s obsolete, it’s been obsolete for a while,” said Brian Holdwick, an executive vice president for the Detroit Economic Growth Corp. But it’s prime real estate -- near the riverfront in a rebounding downtown, officials noted.
Crain's Detroit Business's Bill Shea's exhaustively extensive take on the situation will wrap this entry up, and I'll leave it up to you to fight it out in the comments section, on Twitter, etc.:
Jackson said the demolition would happen not long after the Red Wings move out, pending an agreement with the state.
Joe Louis, named for the heavyweight boxer who once called the city home, was built by Detroit for $30.3 million and financed with municipal bonds. The team, then owned by Bruce Norris, signed a deal in 1979 to move into brand-new Joe Louis that season, leaving behind Olympia Stadium, its home since 1927. Norris also owned Olympia, which was demolished in 1987.
Mike and Marian Ilitch bought the Wings from Norris for $8 million in 1982. Joe Louis falls under the Detroit Building Authority, specifically the authority’s Municipal Parking Department.
Other new details unveiled today include:
* Olympia would comply with the city’s Prevailing Wage Ordinance, and hire a certain percentage of Detroit residents and firms for arena construction.
* Olympia will pay $2 million annually into a capital fund for repairs or improvements if it chooses to extend the 35-year lease. It has a dozen five-year extension options under the deal. That’s atop a $500,000 annual repairs fund, fueled equally by the DDA and Olympia, beginning in 2017.
* If the deal is approved by the council, it would take effect April 1.
The project needs city council approval of a proposal to expand the current 615-acre DDA property tax capture district by about 40 blocks north of the Fisher Freeway between Grand River and Woodward avenues to encompass the arena district site.
The council has said it won’t vote until it sees details of the concession management agreement between the DDA and Olympia Development.
The council was scheduled to meet Tuesday, but that may be moved to Friday.
This is a superb point to end upon, and as usual, I strongly suggest that you read the balance of Shea's article as he offers a second article's worth of context-adding facts, figures and explanations:
Olympia estimates a new arena will have 50 more non-hockey events than Joe Louis does now, and project backers claim it will boost city tax revenue and create jobs while involving no new taxes. Critics dismiss the plan as corporate welfare for a billionaire pro sports team owner.
In my opinion, it's a little bit of both.
Update: I will say this: this may be the key point upon which the City Council's approval of the downtown expansion may hinge, per Michigan Radio's Sarah Cwiek:
The project also includes $200 million in as-yet-unspecified private, “mixed-use” development.
That lack of detail worries some neighborhood residents, who say the community’s voice needs to be heard in this process.
“What’s going to happen across the street from where the arena is built? How is the rest of the area going to be developed?” asks Francis Grunow, with the neighborhood group Corridors Alliance. “These are things we want to know. There needs to be transparency in this process.”
That's going to be the clincher--figuring out how the $200 million that the Ilitches are paying for, essentially speaking, will benefit the city and its residents.
Update #2: MLive's Khalil AlHajal also offers the following:
"We have a verbal commitment from them at this point," said Brian Holdwick, the Detroit Economic Growth Corporation's head of business development.
A message seeking comment on the matter was left with the governor's office.
The DDA would own the new entertainment complex under the plan, meaning the city would benefit only from income taxes -- no property taxes.Construction would bring about 8,300 temporary jobs and the development would create about 500 permanent positions, DEGC officials said.
Detroit Emergency Manager Kevyn Orr and the Homeland Security Department would also have to sign off on the plan before it moves forward, officials said.
"There is still plenty of work to be done," said DEGC CEO George Jackson. "... We are going into this with the full expectation that this project will reach its fruition."
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