Friday, March 1, 2013

Public Investment in Professional Sports Sinks Detroit into Deep Debt; Michigan Governor Declares Economic Emergency, Plans to Take Over City

Today, Michigan Governor declared a financial emergency for Detroit laying the groundwork for a state takeover of the city. The Detroit Free Press explains what this means:
"The decision means Motown will soon have a new boss in charge of restructuring Detroit's dire financial mess, likely to include drastic cuts in public services and a top-down rethinking of the type of government a shrunken city with a dwindling tax base can afford.
Comerica Park
"In many ways those questions have been nipping at Detroit for decades, but the issues came to a head over the last 18 months as increasingly dour economic forecasts found a city unable to address fundamental questions about its debt.
"'I look at today as a day as a sad day, a day I wish had never happened in the history of Detroit, but also a day of optimism and promise,' Snyder said."
According to the AP,  Detroit is facing a $327 million budget deficit and "more than $14 billion in long-term debt."

How could this be?  Last decade, Detroit's government invested heavily in downtown sports stadiums to spur economic development.  In 2000, Comerica Park opened for Major League Baseball's Detroit Tigers.  In 2002, Ford Field opened for the National Football League's Detroit Lions.

But even though Detroit was drowning in debt, City political and business leaders plowed ahead with the downtown professional sports investment strategy.  Just this past December, it was reported that the owner of the Detroit Red Wings was looking to building a new $650-million entertainment district for the team in downtown Detroit with the help of state and local taxpayers:
A spokeswoman for the Ilitch family's Olympia Development said the proposal begins a process "to explore the viability" of such a district. But a news release quoted George Jackson Jr., the city's top development official and president and CEO of the Detroit Economic Growth Corp., as saying the plan "makes good business sense."

"It's not a plan for an isolated, single-use structure," Jackson said in the release. "Instead, it builds on the clear successes we've already had downtown integrating districts that feature entertainment and support commercial, retail and residential development around them."

There were no estimates yet of the number of residential units, retail shops or office space square footage.
A "significant private investment" -- presumably from the Ilitches -- would help pay for it. But the project also would need public support in the form of tax dollars currently collected by the city's quasi-public Downtown Development Authority. Parts of the plan need approval by the state Legislature.

Paying for the project would not require any new taxes, Jackson said. But a state Senate Fiscal Agency analysis said the financing arrangement, if approved, "would reduce both state School Aid Fund revenue and local tax revenue by an unknown amount."
As part of its economic development strategy, Detroit invested heavily in downtown sports stadiums to try to drive economic development.   The City was promised lofty returns on its money.  It didn't happen.  Detroit's fiscal woes only grew worse. The return on the investment in professional sports never paid off.

Yes, Indianapolis is more sound financially than Detroit. But that doesn't make the professional sports strategy here any more sound here than it is in the Motor City.  It just means that taxpayers in Indianapolis can suffer the inevitable losses from such a poor strategy for a longer period of time than taxpayers in Detroit.  But the day will come when the State of Indiana is forced to take action to save the City of Indianapolis from public and private leadership that seems not to care much about what is in the best interests of taxpayers.

Detroit's present is Indianapolis' future. Mark my words.


Jeff Cox said...

No, Paul. Detroit invested heavily in downtown stadiums to keep what little economic development they had. And to keep some of the few unifying forces and sources of pride the city has left.

Paul K. Ogden said...

You might have a point about "pride." There is an intangible benefit of pro sports that's impossible to measure. But, outside that intangible benefit, investing in professional sports has been shown time and time again to be a bad bet. If you break even on the public investment a city is extremely lucky. Usually though municipalities end up losing a lot of money.

Jeff Cox said...

Actually, Paul, that has not been shown time and time again because the studies purporting to show that have improper metrics. But you and I have discussed that ad infinitum.

Shermlock Shomes said...

Stadiums and professional sports teams are at best an amenity that could potentially draw companies and individuals to a city. It's unfortunate that Hoosier politicians went this route rather than choosing other amenities that would also have some tangible benefit to Hoosier citizens.