Let Them Eat Pucks

Detroit is still sinking money into a new professional hockey arena, despite its bankruptcy.

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Detroit Red Wings goalie Jimmy Howard reaches for the puck shot by Chicago Blackhawks center Patrick Sharp during the second period in Game 7 of the NHL hockey Stanley Cup Western Conference semifinals, Wednesday, May 29, 2013, in Chicago. Sharp scored on the shot.

When Detroit filed for what is the largest municipal bankruptcy in United States history, one of the items immediately placed on the potential chopping block was pensions for current retirees who had worked for the city. A pension shortfall accounts for $3.5 billion of the city's $18 billion in debt, and the city's emergency manager, Kevyn Orr, has called for " significant" pension cuts.

But even with pensions possibly getting the axe – along with who knows what else in terms of services for the already downtrodden city, or even masterpieces at the Detroit Institute of Art – Detroit still seems ready to shell out hundreds of millions of dollars to help pay for a new arena for the National Hockey League's Detroit Red Wings. As Crain's Detroit Business reported:

The Michigan Strategic Fund today approved a plan to sell private activity bonds to cover the public portion of the construction of a $450 million Detroit Red Wings arena in downtown Detroit.

Detroit's Downtown Development Authority intends to use $284.5 million in property taxes captured within its 615-acre downtown district to pay off the bonds issued by the state to build the 18,000-seat arena.

[ See a collection of political cartoons on the economy.]

Michigan Republican Gov. Rick Snyder touted the plan as an investment in Detroit's future, saying the arena "should increase the tax base of the city longer term, and should increase the employment opportunities for Detroiters." But if that's what Detroit and Michigan lawmakers are banking on, they are setting themselves up to be sorely disappointed.

"Sports stadiums typically aren't a good tool for economic development," Victor Matheson, an economist at Holy Cross and an expert in sports economics, told Travis Waldron and me last year. As Matheson wrote in a study with economist Robert Baade, "Researchers who have gone back and looked at economic data for localities that have hosted mega-events, attracted new franchises, or built new sports facilities have  almost invariably found little or no economic benefits from spectator sports." This is particularly true of a hockey arena that is only in use 41 dates a year (unless the arena's calendar is filled up with concerts or other events, and assuming there is not another lockout).

[ Weigh in: Should Detroit's pensions be cut in bankruptcy?]

Adding insult to injury, the bankrupt city is going to be spending money to build a new arena for a bonafide billionaire. Mike Ilitch – who founded the Little Caesar's pizza chain and owns both the Red Wings and the Detroit Tigers – and his family have a net worth of $2.7 billion, according to Forbes. The Red Wings are the sixth most valuable NHL franchise. Yet public money is being ponied up to give them a new home.

This certainly isn't a problem that is unique to Detroit. The city of Glendale, Ariz., recently decided to give a huge package of subsidies to the NHL's Phoenix Coyotes, despite the fact that no one goes to see the team and the city is slashing public services. My own hometown of Washington, D.C., is about to spend public money building a new stadium for Major League Soccer's D.C. United. American taxpayers are actually paying some $4 billion to municipal bondholders for costs associated with stadiums, while Harvard professor Judith Grant Long has found another $10 billion in hidden costs to taxpayers for professional sports facilities. There are very few instances in which any of those "investments" are going to pay off in any meaningful way.

But Detroit's decision is even more ridiculous given its bankruptcy. On one hand are pensioners making $19,000 per year for their work for the city; on the other is a billionaire who owns an immensely successful restaurant franchise and two professional sports team. Thus far, the city has only ensured that it will be taking care of the latter.