Detroit Passes $34.5M Bond For Pistons Stadium Construction

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By Alex Ebert

Proponents of public stadium financing scored this week when the Detroit City Council approved a $34.5 million taxpayer bond and a federal court refused to blow up the taxpayer-backed deal to bring the Detroit Pistons to their new downtown stadium.

Some local taxpayers sued to stop the additional funding, approved by the Michigan Strategic Fund in May, alleging the deal violated their voting rights ( Davis v. Detroit Downtown Dev. Auth. , E.D. Mich., No. 2:17-cv-11742, order denying motion for preliminary injunction 6/19/17 ).

On June 19, a federal court ruled that it wouldn’t enjoin the city council from voting on the additional $34.5 million bond—part of $324 million in total public funding for the stadium. The city’s development authority said the financing was necessary to finish the over-budget $863 million stadium construction—as well as save the city from defaulting on its bonds and risking a rating loss that would make it more difficult to issue debt.

A 7-2 Detroit city council vote June 20 sealed the public funding for Little Caesars Arena, where the Pistons are set to tip off this winter. All of the city’s council members declined to comment, and those members with active Twitter accounts didn’t reference their vote on the bond.

No Economic Gain

Since the peak of public-financing deals in the early 2000s, fewer stadiums are being constructed using municipal bonds, according to research by the Brookings Institute. In the past five years, there have only been three new stadiums built with public money.

Although rarer, the deals are becoming larger and remain hotly debated. Detroit’s funding fight is one of several, recent high-profile disputes over public financing in several cities, including similar deals in Cleveland and Las Vegas. The $1.9 billion stadium deal in Las Vegas includes $750 million in public funds, the biggest tax subsidy ever awarded for a professional sports stadium.

Almost every peer-reviewed study on the impact of publicly funded stadiums on the local economy shows there is no economic gain, Ted Gayer, vice president and director of economic studies at the Brookings Institute, told Bloomberg BNA on June 21. That’s because city residents generally only have a certain pool of leisure dollars to spend, and spending it at a new stadium and new restaurants only means that those dollars aren’t being spent on the other side of town.

But lawyers for the Detroit Downtown Development Authority argued the stadium will be a boon to the city.

The “Pistons coming downtown alone is going to put at least four million dollars of additional income tax revenue into the city of Detroit because the players get taxed. That’s a benefit to the citizens of the city of Detroit,” Dennis Egan, attorney at Detroit-based Kotz Sangster Wysocki P.C. said during a June 6 hearing.

If taxpayers “want to file an action in Wayne County Circuit Court claiming that this money has been allocated improperly, they’re free to do so,” he added.

Advice for Politicians

Going to court was what Cleveland taxpayers planned on doing before the city itself preempted them June 5 when it filed a mandamus action with the Ohio Supreme Court. The city is asking for guidance on whether it should permit groups to file petitions to repeal a local ordinance providing ticket-tax public funding for the renovation of the Cavaliers’ Quicken Loans Arena.

Given legal headaches and uncertain gain to a city, Gayer had advice for local politicians.

“Economics shows the best investment dollar for dollar is maintenance of public infrastructure,” he said. “But I get it, filling potholes is not sexy or as good of a photo-op as opening a brand new stadium.”

Last week companion bills were introduced in the U.S. House and Senate that would remove a federal tax exemption for municipal bonds for publicly financed stadiums. The bills, introduced by Sens. Cory Booker (D-N.J.) and James Lankford (R-Okla), and Rep. Steve Russell (R-Okla), would only apply to federal tax treatment of municipal bonds, such as Detroit’s. They wouldn’t affect whether cities may levy incentives through ticket taxes or other methods to finance stadiums as Cleveland has.

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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