Five years ago, Detroit and state leaders were roundly criticized for giving the Ilitch organization hundreds of millions of dollars in public subsidies for the Little Caesars Arena as the city entered bankruptcy.
It seemed an audacious move at the time, with the struggling city the subject of news stories around the world. Economists have long held that stadium subsidies are not worth the cost to taxpayers, and photos of Detroit’s blight and crumbling schools suggested the city had far better places to devote its resources. “Taxpayers Are Losing — Again — in Detroit," a national headline read. Local takes were less forgiving: "In arena deal, Detroit worshipping Mike Ilitch."
But the Ilitches prevailed, promising Detroit would get more than an arena out of the arrangement. The public contribution, they said, would facilitate the creation of a new urban neighborhood stuffed with businesses, apartments, restaurants, and shops. The economic official who negotiated the deal for the city promised density — expressly stating the arena would not be surrounded by parking lots. Skeptics, meanwhile, could rest assured a layer of government oversight would hold the Ilitches to that promise.
But five years later, the arena district is shaping up to be a giant swath of blacktop. At last count, there were 27 parking lots in the area and just one new building project was complete.
Critics charge it’s a sign of continued Ilitch “worship” by the Detroit Downtown Development Authority, which owns the arena and steers the Ilitch organization taxpayer money. The DDA, they say, has failed in its oversight role, allowing the Ilitches to exploit the weaker terms of the deal and miss development and other deadlines without consequence.
“Many significant deals have been made to overwhelmingly favor the business interests of the Ilitch family with little to no benefit to the surrounding neighborhood,” says Francis Grunow, chair of the Neighborhood Advisory Committee that engages with the Ilitch organization on its plans in the arena district.
A Deadline Detroit review of agreements between the DDA and Ilitches obtained through the Freedom of Information Act found the DDA:
- Has given the Ilitches the go-ahead to seek additional public subsidies for future developments, like a sports medicine facility to be built next to the arena.
- Will allow two parking structures and development within the arena to count toward a $200 million ancillary development requirement that triggers a $74 million public reimbursement.
- Has failed to penalize the Ilitches for missing deadlines for key projects, like the Little Caesars global headquarters and redevelopment of the Hotel Eddystone.
- Had until this month failed to request that the Ilitches show evidence of their involvement in community development or youth programs, as the agreement requires. It did so only after an inquiry from Deadline Detroit.
The findings raise questions about whether the DDA is working to ensure the project provides the maximum public benefit or going out of its way to accommodate a developer critics say has burned the city before. The DDA is governed by a board chaired by the mayor and made up of mayoral appointees, nearly all of whom work in the development industry.
While development experts say a certain level of leeway is necessary on deals of this scale, critics counter that the unelected body’s oversight role is an example of “the fox guarding the hen house.”
“When you have people with the same sets of interests in charge of who has access to public subsidies, you’re getting further and further away from what would be a public process that would actually ensure that public expenditures create public benefits,” says Peter Hammer, a Wayne State University law professor and Director of the Damon J. Keith Center for Civil Rights.
The DDA declined interview requests, and a spokesman with the Ilitch organization’s development arm did not respond to multiple emails.
Catalytic converters or catalytic investment?
Under the deal struck in 2014, the public will cover $324 million of the arena’s total cost plus a $74 million reimbursement to the Ilitch organization after it or other entities meet a $200 million spinoff development requirement. The public funding comes through the DDA’s tax increment financing zone, which diverts increases in property tax revenue from things like public safety and the state School Aid Fund for downtown development. In turn, the DDA monitors whether the Ilitches are following the terms of the agreement and gets final say on projects where there’s a public contribution of money or land.
It’s in this oversight function that critics say the DDA has failed.
To the dismay of Detroiters frustrated with the many parking lots that already surround the arena, the DDA will allow two parking structures, slated to have street-level retail, to count toward that $200 million threshold. Together, the structures make up $55 million in investment.
“Besides safeguarding the catalytic converters of largely suburban motorists, there is nothing ‘catalytic’ about these parking garages,” says Grunow, who notes neither structure currently includes the promised retail component. “The only purpose these garages serve is to get arena guests in and out as quickly as possible. All parking revenue goes to the Ilitches, while there’s no relation to the immediate neighborhood in terms of additive retail, commercial, or residential activities.”
While the agreement between the DDA and Ilitch organization does include parking structures with ground floor retail among a list of projects that could qualify for reimbursement, Grunow and others argue it’s not the type of development Detroiters were expecting to subsidize. A list of possible projects the DDA would find “acceptable” also includes new office buildings, building rehabs, and a hotel. The DDA is also able to reject projects on the basis of community needs and how they conform to the city’s master plan.
Separately, the DDA has allowed a Google office at the arena to count as an independent, ancillary property that qualifies for public reimbursement, even though it violates the spirit of the deal.
With parking the central focus of development in recent years, the DDA has allowed the Ilitches to fall behind schedule on more difficult, high-impact projects. For example, the historic Hotel Eddystone was supposed to be redeveloped by last September, but work on the site has yet to begin in earnest. Though the delay seemed to spark a shift in attitude toward the Ilitches, with the city threatening possible legal action, half a year later, no legal action has been taken and the DDA says no timeline for the project has been established. The Ilitches said they would put in windows last fall, but still haven't done so.
The Little Caesars global headquarters, meanwhile, is still not open, even though an agreement with the DDA says it was to be completed by “Q4 2018.” Despite the delay, the DDA says the project remains scheduled to count toward the $74 million reimbursement.
“The DDA is failing the citizens of Detroit,” says Grunow. “Why have they given the [Ilitch organization] such generous extensions on commitments they haven’t lived up to? Where are the repercussions?”
Possible repercussions for delays vary depending on the property. Previously publicly owned parcels can be repossessed by the DDA if the Ilitches fail to comply with the agreement.
Critics of the Ilitch organization doubt anything resembling the promised district will ever materialize. They contend the Ilitches previously duped the public with promises of a high-density, mixed-use neighborhood in the mid ‘90s, when they sought tax breaks for Comerica Park.
Scaled-down plans for the District Detroit have further eroded confidence. Four years ago, the Ilitch organization presented its detailed vision for five neighborhoods, but the neighborhoods tab on the District Detroit’s website has since disappeared and a spokesman has evaded media inquiries on the subject. In 2017, the Ilitch organization announced it would soon begin construction on a series of projects that would represent “the largest residential development in Detroit in more than 20 years,” but by early 2018, those plans had shifted to focus on more office space. Only one of the of the projects announced in the latest media blitz, an office and medical facility, has received formal approval from the DDA and appears to be under way. When a “hiring binge” at the Ilitches’ development company was reported last year, five of ten open jobs were parking-related.
What about the kids?
In further evidence of seemingly lax oversight, the DDA has failed to ask, as required, for an annual report from the Ilitch organization on its promise to support programs that “foster positive social change throughout the community.” Only after a FOIA request was filed by Deadline Detroit did the DDA request the summary report.
Development experts say some leniency is necessary on projects with this many components, but must be balanced with proper oversight.
“You almost have to look at these one by one,” said John Mogk, a Wayne State University law professor who specializes in urban planning. “Why is it the case they haven’t produced a report when they’re contractually obliged to do so … Are the delays because Ilitch Holdings is simply dragging its feet or has there been some change in circumstance?”
That remains a mystery, however, as the DDA would not make anyone available to answer questions. We reached out to a representative with the organization as well as every one of its board members. One board member said he would speak to us only with approval from the higher ups at the Detroit Economic Growth Corporation, the non-profit that staffs the DDA. He never called.
“The problem is you keep adding questions,” Fisher, the DDA spokeswoman, told us at one point via email. “We don’t have the staff to be responding to question after question.”
The DDA is not known for its transparency. Its committees started meeting in public only two years ago, after a lawsuit alleged a financing committee had discussed the Pistons’ tax-subsidized downtown move in a private session that violated the state’s Open Meetings Act. Meanwhile, the non-profit DEGC that staffs the DDA is not subject to public records requests, even though, as of 2014, 70 percent of its operating revenue came from public dollars.
A different way of doing things
Economic agencies like the DDA are designed to streamline the development process for private investors, with the idea that a board made up of appointees with development backgrounds can act nimbly to execute deals.
But the arrangement increases the likelihood the process will fail to serve the public interest, Hammer says, as the board is not elected and therefore not accountable to the public. Couple that with board chair Detroit Mayor Mike Duggan’s desire to see the deal succeed, and the deck is stacked in favor of the Ilitches, says Michael LaFaive, senior director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy.
“The higher profile the business, the harder it may be to end bad deals once they’ve started and [the easier it may be] accept a lower level of performance,” says LaFaive. “People in public office don’t want to be seen as making an error in judgment and they certainly don’t want to give up the prospect of getting something for the incentives that they’ve offered.”
In response to this report, the mayor’s Chief of Services and Infrastructure, Arthur Jemison, issued the following statement:
“The City and the DEGC have been working since before the first deadline to move this project forward and we will continue to do so. We are working to amend the agreement and identify a path forward to a successful development."
What’s the hold-up?
Urban planning experts say the type of development envisioned in the District Detroit can take a generation, and snags and change are to be expected along the way. The Ilitch organization’s development arm lost two key housing partners last year, and afterward went on a hiring spree that, according to Crain’s, signaled a possible shift in strategy.
Mogk attributes the delays to unexpected competition from Dan Gilbert’s Bedrock, whose mixed-use development projects are now inching up Woodward toward the district with help from massive subsidies.
“This is not a situation with development that if you build it they will come,” says Mogk. “If you build it and the market is not there for the space you’ve created or someone else is building space for which you're competing … you may not get a return on investment.”
The deep discounts Gilbert is getting nearby don’t bode well for taxpayers leery of subsidizing a development showdown between Michigan’s richest residents.
With the Ilitch organization's $200 million spinoff development requirement now met, the DDA says it can apply for additional subsidies for development projects within the arena district. The organization last year laid out its intention to do so in a development agreement that won unanimous approval from the DDA.