There’s been plenty of news recently about the city of Detroit filing for bankruptcy. Detroit has been in financial trouble for quite some time, in fact. Dwindling population numbers combined with an increasing budget for the city have combined to cause major financial issues for the city. Then, I see this article on CNN Money about the new Red Wings arena.
A city, deep in bankruptcy, is still going forward with plans to build a new hockey arena with a total cost of over $400 million? What. The. Heck. Further, if you read the article, almost $300 million of that total will be taxpayer funded. They’ve got some expert that studied the plans and he estimates that it might bring in $1 billion in funds over the next 30 years. Which will do little for the city, if they don’t exist in 10…
If circumstances were different, and the city hadn’t just filed for bankruptcy, I could see moving forward with the arena. After all, the arena that a team plays in can be a very important part of keeping the team in the city, as well as a good source of tourism funds. But, that’s really all it does. It’s not going to help the city get police to respond in under an hour. In fact, if it increases tourism, that might get worse. It’s not going to help with the huge outflow of population. It’s not going to help them keep their schools funded, or fully fund the pensions of the retired workers. The impact will be mostly centered around the arena, and not very far reaching.
If, in fact, it does increase the tourism in the area, I suppose you could make the argument that it would bolster the city’s revenue. But enough to make any real dent in the current situation? Not likely. The construction likely will take at least a year. Maybe two. Aside from some temporary construction employment, the positive impact of the arena won’t be felt for at least two years.
Compare this to someone like you or me declaring bankruptcy and then continuing with construction of a new home. Here’s how that would likely work out. First, the bank would cancel any remaining funding in a construction loan. (Unless you waited until after bankruptcy to try and get the loan, in which case they’d likely laugh you out of the bank.) Second, if you had used the land as collateral on the construction loan, the bank would seize it. Third, you’d finish up the bankruptcy, go back to work, and have to work at saving up enough to start over again. No bank would let you just continue on with the new home. So why is the State of Michigan allowing this?
From what I gather from that article, it sounds like the new arena, and it’s funding plan was approved in the Michigan legislature back at the end of 2012. Detroit was in trouble then, but has only filed for the bankruptcy in the last few weeks. So, it was approved before the situation got worse. Fine. But, again, just because it seemed ok then, doesn’t make it still ok. If the state wants to help Detroit out, they’d be better off spending that $300 million on making sure essential services are properly funded, and able to provide services in a timely manner. Or, they could spend it on a major house cleaning, cutting future debt of the city, and finding solutions to the current debt.
Or, they could build a new hockey arena…
What is your take on all of this? Should they continue building the arena?