CXLIV - The Tempe era set to begin as ASU opens Mullett Arena

[Lions67]

I have very much enjoyed this discussion between Ernie and MNnumbers!

 

[Ernie]

I'm saying that the city giving money to Meruelo for construction costs is no more or less of a subsidy than giving Meruelo 30 years of tax breaks. It's just a different kind. In this context, what is going on with the land in an alternate scenario doesn't actually matter. It's still a public subsidy and it would be for another developer getting a different project going. Just like the tax breaks oil companies, corn producers, and people who don't have employment-based health insurance are all public subsidies.

To be clear, I have absolutely no problem with this kind of thing. My city does it all the time to get businesses to come to Charlotte and it's largely beneficial. My hockey team (NY Rangers) is sitting on an indefinite property tax break and won't move as a result, nor do I want them to. And I believe that arenas and hockey teams provide value beyond the balance sheet to cities and markets that make the subsidies worth it.

I can get behind this take! I don't agree with a lot of it but it's a perfectly reasonable argument. I wish we could have this discussion on these terms.

That Madison Square Garden subsidy though.. eesh. Talk about a team that doesn't need a $40m yearly tax break.

If you want to play the game....
- No developer of any kind, looking at that parcel of land, is going to pay the remediation and the infrastructure costs. So, the $220M immediately disappears. ( I like fieldofschemes, but the owner of the website has an angle which he pursues, often without thinking too deeply about the matter).

Which leaves us, again, with only the value of the GPLET. You can argue all you want about that. But given how common it is in Tempe, I think the only reasonable way to consider it is that for years 9-30, that's an exceptional clause which the Coyotes are getting which other uses of the property might not. So, I'd take something like 75% of that, and call that your subsidy. That's right back at about 200-225M.

I would much prefer that the Yotes weren't insisting on years 9-30. And, I'm not so sure I'm completely confortable with the rest. But, that's my take on the GPLET and the remediation and infrastructure.

Well, there has been plenty of questioning about that $220 million initial cost and whether it was reasonable. But I correctly predicted that the final proposal would be much much higher, as the subsidy need for a stadium is much higher than that.

As for the rest.. perhaps it's somewhat justifiable to have tax abatement because "that's just how business is done in Tempe." Obviously the Phoenix area is very developer friendly which is how they've managed to achieve such rapid growth. Other cities that have done that are finding that decades down the road they suddenly don't have money to maintain the aging infrastructure. It's like a condo building not charging fees then suddenly they need a new roof and nobody can afford it. But that's getting off topic again.

Anyways, even by your math that $200m - $225m doubles the initial subsidy. It's like the goal posts have been moved incredibly but it's only put people further in denial.

It would be refreshing to see that be acknowledged here.

 

[TheLegend]

Legend,

Can you give us run down on how this would work should it pass?
For example, the land has to be remediated first, right? Then, the arena and practice facility are the first things to be built, correct? What does Tempe have to pay out for that? more than just infrastructure costs? I'm assuming Meruelo is paying for entire construction, but I also just heard a podcast with Mayor Woods on it, referencing some bonding, and I don't know what that means, how it's used, or how I feel about it.

Help me out.

And, please 1CasualFan, stop by and jump in here.

(Going off the top of my head here so I may miss something)

If it passes..... Meruelo immediately puts $40 million down for the land purchase. This is non-refundable the moment the first shovel of dirt is removed.

Land remediation happens first. They would have to clear the site before the EPA would allow them to begin building on it that the public would occupy. Total cost is going to run $70-79 million. That $40 will probably go towards it.

Once the land remediation is done a second assessment will be done to determine a final price of the land. So Meruelo will be more than likely pay a higher price than where it's assessed at now.

Now I'm not exactly sure about when the CFD is created by the city but everything will be going through it. The CFD will be the bond issuer and responsible for paying them off. Tempe won't be directly be attached to it. The CFD will only include TED and no other parts of Tempe. The interest rates for the bonds will be higher than if the city itself were to issue them, but that means the city is protected. TED will be the collateral.

Most of what I said comes from within the summary of the DDA which is here:

https://www.tempe.gov/home/showpublisheddocument/99461/638054254107370000

This is probably a better explanation than what I could give you.

(and I agree I wish @1CasualFan was here to explain the mechanisms.)

 

[MNNumbers]

Okay. I don't like the CFD. That's a quasi-governmental agency with the ability to sell bonds. I don't really call that private financing. Real private financing would be....Meruelo and whoever he can recruit to work with him on the project finance it, and pay for it.

The remediation and infrastructure costs are not really a subsidy in the usual manner. I don't know of any arena that has been built, and the builders also paid to have the roads ungraded. But, I'm coming back to this in a minute.

The other advantage is Years 9-30 of the GPLET. As I mentioned previously, this is probably 200-225 million worth of advantage.

From Tempe's point of view....
Their own estimates suggest, in the end about 6M per year of benefits. (200M divided by 30 years). I don't think that is very much. This takes into account the 200M for infrastructure and remediation.
They also get the land remediated for an amount which is contained within that 6M year of benefits.
So, yes, it's a benefit. Perhaps not a great one, but it's a benefit. They also get their name on everything, which might be more important to them than anything else.

I think I have as good of figures as I could have if I lived there, and I wouldn't know which way I wanted to vote.

 

[Tawnos]

I can get behind this take! I don't agree with a lot of it but it's a perfectly reasonable argument. I wish we could have this discussion on these terms.

That Madison Square Garden subsidy though.. eesh. Talk about a team that doesn't need a $40m yearly tax break.

That tax exemption essentially paid for the entire $1.1B renovation they did a few years back.

 

[Ernie]

That tax exemption essentially paid for the entire $1.1B renovation they did a few years back.

That's a big number but pales in comparison with the value of the teams and related businesses.

I get it though, the idea of them moving from MSG sounds like sacrilege.

 

[MNNumbers]

That's a big number but pales in comparison with the value of the teams and related businesses.

I get it though, the idea of them moving from MSG sounds like sacrilege.

The word sacrilege from someone who opposes the present situation in Tempe on grounds that every penny which gives the team's parent company any advantage.....

The word sacrilege from someone who, at least twice in the last 4 hours, has decried small market teams as not having a business model to keep up other than gov't handouts.

Interesting.

Ernie, you can't have both. If you force us to consider the Yotes strictly on the basis of the cold hard facts of their business, them you must do the same for the Rangers, even if the result is that they have to move.

Right?

 

[Tawnos]

That's a big number but pales in comparison with the value of the teams and related businesses.

I get it though, the idea of them moving from MSG sounds like sacrilege.

Given the amount of sales tax involved and the number of events there, the city still comes out ahead on it. It's the busiest arena in the country. It's a different animal than something like TED, in that sense.

Even so, despite my attachment to MSG, I can recognize that the city would probably be better of with the real estate being used for Penn Station and the Garden being elsewhere. Had Bloomberg's NYC agreed to transport their tax exemption elsewhere, they probably would have built a new stadium rather than completely overhauling this one.

 

[Ernie]

So, yes, it's a benefit. Perhaps not a great one, but it's a benefit. They also get their name on everything, which might be more important to them than anything else.

And we've circled back to the vanity project.

Politicians LOVE big fancy buildings throughout history whether they be the pyramids or churches or mosques or temples. Funny that so many of them are religious buildings, but I guess that's how they are justified.

 

[Takuto Maruki]

This is a discussion board to talk about business things, which I am doing.

While also completely avoiding any and all points that directly pokes holes into the arguments you are making?

Like, yeah you are talking in the discussion, but you're swiftly avoiding anything that might disprove the idea that the Coyotes are doing the Tempe arena with wholly public funds, and anything that might poke holes into your desires and fantasies of this blowing up in the NHL's face and that they can finally rue the day that they decides to head to the desert to begin with.

 

[Ernie]

The word sacrilege from someone who opposes the present situation in Tempe on grounds that every penny which gives the team's parent company any advantage.....

The word sacrilege from someone who, at least twice in the last 4 hours, has decried small market teams as not having a business model to keep up other than gov't handouts.

Interesting.

Ernie, you can't have both. If you force us to consider the Yotes strictly on the basis of the cold hard facts of their business, them you must do the same for the Rangers, even if the result is that they have to move.

Right?

What? Just because I acknowledge something doesn't mean I agree with it!

Believe it or not it is possible to have a nuanced discussion about things.

I would genuinely be curious as to what would happen if the MSG subsidy was put to referendum though.

I like small markets. I've said many times that the Phoenix area should have a team. I advocate for more revenue sharing instead of public subsidies. And yes, the players don't need to make that much money. More revenues should go to venue costs than into their already wealthy pockets.

I don't like Meruelo, it's true, for good reasons IMO. I don't like the way the NHL has built its business model with public subsidies even more.

 

[MNNumbers]

What? Just because I acknowledge something doesn't mean I agree with it!

Believe it or not it is possible to have a nuanced discussion about things.

I would genuinely be curious as to what would happen if the MSG subsidy was put to referendum though.

I like small markets. I've said many times that the Phoenix area should have a team. I advocate for more revenue sharing instead of public subsidies. And yes, the players don't need to make that much money. More revenues should go to venue costs than into their already wealthy pockets.

I don't like Meruelo, it's true, for good reasons IMO. I don't like the way the NHL has built its business model with public subsidies even more.



Pipe down, the adults are talking here.

Let me try this again....
You say you like small markets. I'll assume that means you want the Coyotes to stay in Arizona. Describe for me your ideal way to make that happen.

 

[Ernie]

Let me try this again....
You say you like small markets. I'll assume that means you want the Coyotes to stay in Arizona. Describe for me your ideal way to make that happen.

I don't think there is a viable way without public subsidies, and as someone who isn't a Coyotes fans, I think it would be better for the citizens of Tempe that they moved instead of paying those subsidies.

Each time a city gives in to this it just creates a cascading effect and the NHL ends up with billions of dollars padding its bottom line. There is an alternate scenario where cities grew a backbone, didn't subsidize, and the NHL would have to pay its own bills.

I would likely have a different opinion on this particular proposal if I was a Coyotes fan. I don't judge them for that; people look out for their self interest.

Just like if the government decided to give me a trillion dollars. There is no justification for it, terrible public policy, but am I going to say no?

 

[mouser]

Legend,

Can you give us run down on how this would work should it pass?
For example, the land has to be remediated first, right? Then, the arena and practice facility are the first things to be built, correct? What does Tempe have to pay out for that? more than just infrastructure costs? I'm assuming Meruelo is paying for entire construction, but I also just heard a podcast with Mayor Woods on it, referencing some bonding, and I don't know what that means, how it's used, or how I feel about it.

Help me out.

And, please 1CasualFan, stop by and jump in here.

Phase 1 estimates is $50m in CFD bonds:
$44m site remediation
$15m levee shoring (remediation)
$12m "acquisition cost"
$12m contingencies reserve
$1m misc
$1m bond underwriting
$5m capitalized interest:
----
$90m

minus $40m Bluebird deposit = $50m CFD bonds for phase 1.

The "acquisition cost" item can be very non-intuitive to understand. It's not truly a cost to the CFD, but rather an accounting offset recognizing that the money ($40m and $10.3m) deposited by Bluebird into the account can be used as working capital by the CFD to reduce bond outlays over any phase of the development, but the longer term use of those deposits will be to purchase the land from Tempe after remediation is completed. You can see this reflected in the charts:

For example, they list total CFD spending as $258.5M here but CFD bond amount of only $208.17M. If you look at the Acquisition Cost and Cash Contribution items both of $50.377M you realize they cancel each other out over the lifetime of the project.

 

[TheLegend]

Okay. I don't like the CFD. That's a quasi-governmental agency with the ability to sell bonds. I don't really call that private financing. Real private financing would be....Meruelo and whoever he can recruit to work with him on the project finance it, and pay for it.

The remediation and infrastructure costs are not really a subsidy in the usual manner. I don't know of any arena that has been built, and the builders also paid to have the roads ungraded. But, I'm coming back to this in a minute.

The other advantage is Years 9-30 of the GPLET. As I mentioned previously, this is probably 200-225 million worth of advantage.

From Tempe's point of view....
Their own estimates suggest, in the end about 6M per year of benefits. (200M divided by 30 years). I don't think that is very much. This takes into account the 200M for infrastructure and remediation.
They also get the land remediated for an amount which is contained within that 6M year of benefits.
So, yes, it's a benefit. Perhaps not a great one, but it's a benefit. They also get their name on everything, which might be more important to them than anything else.

I think I have as good of figures as I could have if I lived there, and I wouldn't know which way I wanted to vote.

Fair enough.

Long term it's a net plus for the city if it pans out according to plan.

As opposed to not doing anything at all and continuing to spend tax dollars to maintain a piece of land they own that generates no income with no practical alternative.

 

[TheLegend]

I have very much enjoyed this discussion between Ernie and MNnumbers!

One side basing their thoughts on actual data and the other based purely on repetitive speculative opinion.

Yep.

 

[mouser]

Okay. I don't like the CFD. That's a quasi-governmental agency with the ability to sell bonds. I don't really call that private financing. Real private financing would be....Meruelo and whoever he can recruit to work with him on the project finance it, and pay for it.

The remediation and infrastructure costs are not really a subsidy in the usual manner. I don't know of any arena that has been built, and the builders also paid to have the roads ungraded. But, I'm coming back to this in a minute.

The other advantage is Years 9-30 of the GPLET. As I mentioned previously, this is probably 200-225 million worth of advantage.

From Tempe's point of view....
Their own estimates suggest, in the end about 6M per year of benefits. (200M divided by 30 years). I don't think that is very much. This takes into account the 200M for infrastructure and remediation.
They also get the land remediated for an amount which is contained within that 6M year of benefits.
So, yes, it's a benefit. Perhaps not a great one, but it's a benefit. They also get their name on everything, which might be more important to them than anything else.

I think I have as good of figures as I could have if I lived there, and I wouldn't know which way I wanted to vote.

Trouble is, what better options would there be than a CFD? Something has to be done to deal with the problem of the land having such negative value. And that negative value isn't capped. They have some good estimates, but once the dump is opened up and remediation starts it's possible they find something that increases the costs. (Note: the DDA does cap land remediation to the city/CFD where Bluebird takes on the risk of an overage).

The original proposal would have had the city of Tempe sell bonds to cover the land remediation. But they switched from that to a CFD model which keeps any bonds off Tempe's balance sheet, minimizing financial risk to the city. I'm not sure what other acceptable mechanisms would be available where Tempe could give benefits to a developer to offset the negative value of the land they're selling?

 

[MNNumbers]

I don't think there is a viable way without public subsidies, and as someone who isn't a Coyotes fans, I think it would be better for the citizens of Tempe that they moved instead of paying those subsidies.

Each time a city gives in to this it just creates a cascading effect and the NHL ends up with billions of dollars padding its bottom line. There is an alternate scenario where cities grew a backbone, didn't subsidize, and the NHL would have to pay its own bills.

I would likely have a different opinion on this particular proposal if I was a Coyotes fan. I don't judge them for that; people look out for their self interest.

Just like if the government decided to give me a trillion dollars. There is no justification for it, terrible public policy, but am I going to say no?

I might say I don't like it. But the reality is that, except for the year 9-30 GPLET, this whole thing is a very standard issue development. You continue to call them subsidies. I don't agree that a GPLET is a complete handout. I would rather say that the citizens of Tempe won't even notice the difference, because what you are calling a handout isn't money that they have that is being lost.

Also, from the way you answered this question, I must ask another question: What is the optimal size of the NHL in your world?

 

[Dirty Old Man]

One side basing their thoughts on actual data and the other based purely on repetitive speculative opinion.

What we're getting here, at the end of this 12-15 year saga, looks to likely end up being a rather detailed lesson in how to do all this correctly, after a string of examples of how not to.

The only ones pooh-poohing it at this point are the Usual Suspects, that for whatever little reasons they have, hate Arizona and/or hate southern hockey and/or hate the rich and/or have misguided issues with how the NHL functions as a business.

 

[Ernie]

I might say I don't like it. But the reality is that, except for the year 9-30 GPLET, this whole thing is a very standard issue development. You continue to call them subsidies. I don't agree that a GPLET is a complete handout. I would rather say that the citizens of Tempe won't even notice the difference, because what you are calling a handout isn't money that they have that is being lost.

Also, from the way you answered this question, I must ask another question: What is the optimal size of the NHL in your world?

I think I've mentioned this before, but the other residents of the city will have to cover the costs of public services, along with infrastructure maintenance. Those hundreds of millions of dollars in taxes wouldn't just go into an empty bucket - they are needed!

Size of the NHL? That's above my pay grade. I definitely think that a larger geographic footprint is good for the league as a whole. I would argue that the NHL should look for international opportunities as well. Generally speaking I roll my eyes at the idea ice hockey should exist in some places but not in others.

Phoenix is a top 12 market in terms of population size, so yes, I think they should have a team.

 

[MNNumbers]

I think I've mentioned this before, but the other residents of the city will have to cover the costs of public services, along with infrastructure maintenance. Those hundreds of millions of dollars in taxes wouldn't just go into an empty bucket - they are needed!

Size of the NHL? That's above my pay grade. I definitely think that a larger geographic footprint is good for the league as a whole. I would argue that the NHL should look for international opportunities as well. Generally speaking I roll my eyes at the idea ice hockey should exist in some places but not in others.

Phoenix is a top 12 market in terms of population size, so yes, I think they should have a team.

You obviously DON'T think Phoenix should have a team. Nor Minnesota, nor Columbus, nor probably Pittsburgh, nor Tampa, nor South Florida. Nor about 15 other places. The benchmarks you are setting, for the sake of your own (I'm sorry for this evaluation) self-righteousness about subsidies, are such that there would only be about 8 teams in the league.

You need to admit that to your self.

You have been buying Neil de Mause's snake oil for too long.

Again, I'm sorry. But in another place at another time, your approach to this, in reality, amounts to what was once called BANANA. Build Absolutely Nothing Anywhere Near Anybody.

You are so focused on what you think is "right" that you can't see a deal which might actually work.

Further, to extend your hatred for any gov't assistance to businesses at all, I think that if you had it the way you wanted it, there wouldn't be any manufacturing in the US, on shore. Why? Because manufacturing plants are expensive. And, the labor to run them isn't cheap here. It's cheaper in Asia. But, gov't can soften that and create some local businesses with things like Arizona's GPLET law. But, to be consistent, you would have to despise and veto all of those as well, right?

So, go ahead. Force them to relocate. Where are the going? Right now the answer would likely be Quebec City, because that's the only place where someone would pay for them. Do you know how the arena was paid for there? Gov't paid it all. Yep. Everything. Cosmic justice.

What we're getting here, at the end of this 12-15 year saga, looks to likely end up being a rather detailed lesson in how to do all this correctly, after a string of examples of how not to.

The only ones pooh-poohing it at this point are the Usual Suspects, that for whatever little reasons they have, hate Arizona and/or hate southern hockey and/or hate the rich and/or have misguided issues with how the NHL functions as a business.

Or who think that gov't should contribute absolutely nothing to help businesses at all.

 

[Ernie]

You obviously DON'T think Phoenix should have a team. Nor Minnesota, nor Columbus, nor probably Pittsburgh, nor Tampa, nor South Florida. Nor about 15 other places. The benchmarks you are setting, for the sake of your own (I'm sorry for this evaluation) self-righteousness about subsidies, are such that there would only be about 8 teams in the league.

You need to admit that to your self.

You have been buying Neil de Mause's snake oil for too long.

Again, I'm sorry. But in another place at another time, your approach to this, in reality, amounts to what was once called BANANA. Build Absolutely Nothing Anywhere Near Anybody.

You are so focused on what you think is "right" that you can't see a deal which might actually work.

Further, to extend your hatred for any gov't assistance to businesses at all, I think that if you had it the way you wanted it, there wouldn't be any manufacturing in the US, on shore. Why? Because manufacturing plants are expensive. And, the labor to run them isn't cheap here. It's cheaper in Asia. But, gov't can soften that and create some local businesses with things like Arizona's GPLET law. But, to be consistent, you would have to despise and veto all of those as well, right?

So, go ahead. Force them to relocate. Where are the going? Right now the answer would likely be Quebec City, because that's the only place where someone would pay for them. Do you know how the arena was paid for there? Gov't paid it all. Yep. Everything. Cosmic justice.



Or who think that gov't should contribute absolutely nothing to help businesses at all.

Dude, chill. I didn't even know who Neil de Mause is until I googled him just now.

I don't know why you're so insistent on comparing these to industrial subsidies when it is clearly not the same thing. I'm sure there are limits to what you consider of being worthy of subsidies as well! I haven't engaged you on that because it is wayyyy too long of a conversation.

I think all those places should have teams! But I don't think that they bring a public benefit to have the cities pay for them, so they should come out of the money that the league makes. Decrease player salaries, increase revenue sharing. If NHL players made half of what they do, there would be plenty of money to go around.

What I don't think is right is that Tempe residents should pay around $1000 each (over time) for a team to pay in Tempe. That's a lot of money.

 

[TheLegend]

Dude, chill. I didn't even know who Neil de Mause is until I googled him just now.

I don't know why you're so insistent on comparing these to industrial subsidies when it is clearly not the same thing. I'm sure there are limits to what you consider of being worthy of subsidies as well! I haven't engaged you on that because it is wayyyy too long of a conversation.

I think all those places should have teams! But I don't think that they bring a public benefit to have the cities pay for them, so they should come out of the money that the league makes. Decrease player salaries, increase revenue sharing. If NHL players made half of what they do, there would be plenty of money to go around.

What I don't think is right is that Tempe residents should pay around $1000 each (over time) for a team to pay in Tempe. That's a lot of money.

Well I think that just reaffirmed my previous post above.

 

[MNNumbers]

Dude, chill. I didn't even know who Neil de Mause is until I googled him just now.

I don't know why you're so insistent on comparing these to industrial subsidies when it is clearly not the same thing. snip

I'm just to answer this part right now.
They are obviously the same as industrial subsidies. EVERY DEVELOPMENT along Rio Salado either is, or has been, under an 8-year GPLET.

Think about that.

 

[Ernie]

I'm just to answer this part right now.
They are obviously the same as industrial subsidies. EVERY DEVELOPMENT along Rio Salado either is, or has been, under an 8-year GPLET.

Think about that.

You think a real estate development subsidy is the same thing as an industrial subsidy? If that's the case I'm not sure it's worth continuing the discussion.