The Little Caesars Arena, replacing the Joe Louis Arena, is the new stadium in Detroit that many locals are hoping will breathe some economic life into midtown. These hopes are amplified by the fact that the Detroit Pistons are joining the Red Wings in calling the new stadium their home. However, at this time it is not clear that the new stadium will be the economic home run that everyone wants it to be.
There are several clear benefits that the stadium is going to bring to Detroit. First, numerous businesses are going to pop up around the stadium in the newly created stadium district. Also, there is the hope that the stadium will amplify job creation and heighten revenues for the city due to the increase in property value in the surrounding area.1
However, even against the backdrop of these probable benefits, the extent of which can only be estimated until the stadium opens later this year, there is the lingering issue of cost. The only way to economically justify the stadium is if the cost is reasonable compared to its expected contribution to the community, and this stadium is already very expensive. The cost of the Little Caesars Arena is already in excess of $732.6 million dollars.2
The billionaire Illitch family, which owns both the Tigers and Red Wings, is not the sole bearer of the financial burden of building this stadium. Tax free bonds are picking up a substantial portion of the bill. Many sports stadiums across the country have been funded using tax free bonds, and Detroit is no exception.3 Of the project’s initial base price of $450 million, $250 million will be provided by tax-free bonds funded by taxpayers. These tax-free bonds will be backed by property taxes captured by the Detroit Development Authority (“DDA”).
Here, the DDA pays the obligations on the tax-free bonds with taxpayer money coming from the DDA’s tax increment revenues. The city of Detroit’s DDA has the authority, under the Downtown Development Authority Act, to levy an ad “valorem tax on the real and tangible personal property not exempt by law and as finally equalized in the downtown district.”4 The downtown district includes many of the city’s largest buildings and contains the area that will now include the Little Caesars Arena.
These taxes are not being paid by regular Detroiters, but rather by the large downtown properties in the downtown district. Further, the stadium should pay for itself in part because of the increased tax revenues flowing to the DDA as a result of the heightened property value of the land the stadium will cover.
Another consideration is that this is classified as a Catalyst Project, meaning that only one of these projects may exist at any given time. This requirement comes from Section 1 of the Downtown Development Authority Act, which states that there can be no more than 1 catalyst development project designated within each authority.5 So, for the time that it has taken to build this stadium, the DDA has been restricted in pursuing other efforts to develop the downtown area.
In addition to the economic benefits of the stadium, there are intangible benefits that should be considered. One such consideration is the undeniable sense of pride that goes along with having a top notch sports facility. The stadium contributes to the beautification of an area that was once covered with urban blight. It will be exciting to see the extent to which the new stadium truly helps Detroit in the near future.
Garrett Johnson, The Economic Impact of New Stadiums and Arenas on Cities, 2011 DEN. U. SPORTS & ENT. L.J. 1, 35–36 (2011). ↩
Louis Aguilar, Cost to Build Little Caesars Arena Rises $105M, The Detroit News (Nov. 7 2016), http://www.detroitnews.com/story/business/2016/11/07/little-ceasars-arena-cost-detroit-rises/93461102/. ↩
Scott A. Jensen, Financing Professional Sports Facilities with Federal Tax Subsidies: Is It Sound Tax Policy?, 10 MARQ. SPORTS L.J. 425, 431–32 (2000). ↩
Downtown Development Authority Act 197 of 1975 § 12, M.C.L.A. § 125.1662. ↩
Downtown Development Authority Act of 197 of 1975 § 1, M.C.L.A. 125.1651. ↩