Glendale keeps paying and paying and paying

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Bartley Kives / Winnipeg Free Press archives Jobing.com Arena has turned into a financial black hole for Glendale.

PHOENIX -- The city of Glendale celebrated a decade ago when the National Hockey League's Coyotes abandoned downtown Phoenix for a taxpayer-funded suburban arena surrounded by a sports and entertainment complex.

Since then, much of the planned development has stalled, tax revenue and attendance have plunged, and the team's former owner filed for bankruptcy protection. That left the city of 227,000 spending $25 million a year to subsidize the Coyotes' losses as the NHL seeks a buyer for the franchise, which avoided elimination in the playoffs with a win Sunday in game four of the Western Conference finals against the Los Angeles Kings.

Glendale officials are negotiating an arena lease that would give a potential buyer of the team $17 million a year to manage the arena, while they work to close a $32 million budget deficit for the coming year. The city fired 49 workers last week and is considering a sales-tax increase that would make its rate one of the highest among major U.S. cities, according to the Washington, D.C.-based non-profit Tax Foundation.

"They said under the worst conditions financially we would make over $100,000 on the arena" each year, said City Councilman Phil Lieberman, who has served for 20 years. "How could we go wrong? It would cost us nothing."

The losses underscore the risks cities confront when they offer incentives to lure professional sports teams and develop nearby properties in anticipation of an economic surge, said Timothy James, an economics professor at the W. P. Carey School of Business at Arizona State University in Tempe.

"They've got a big hole in their budget to keep the ice hockey team in town," James said. "It's not like a road system or hospital where there are benefits everyone gets. It's a sports team. It should be able to stand up on its own."

In 2003, Glendale issued $155.2 million in revenue bonds backed by sales taxes to finance construction of what's now the Jobing.com Arena, to bring the Coyotes from Phoenix. The franchise had moved there from Winnipeg in 1996.

The ownership group was led by Steve Ellman, who planned to develop retail, residential, restaurant, office and hotel space around the stadium. The project, Westgate City Center, opened in 2006, just after Glendale scored another coup, drawing the National Football League's Arizona Cardinals to the new University of Phoenix Stadium in the city.

While Westgate's sales taxes were pledged to the arena bonds, only about a third of the development was built, Lieberman said. The developer filed for bankruptcy and the property was repossessed by the lender, New York-based IStar Financial, in September after it failed to sell at auction.

Jerry Moyes, who assumed ownership of the Coyotes in 2006, filed for Chapter 11 bankruptcy protection in 2009. Jim Balsillie, then co-chief executive officer of Research In Motion Ltd., offered to buy the team with the intention of moving it to Hamilton, Ontario. The NHL bought the team for $140 million. Fearing its prime arena tenant would leave, Glendale agreed to subsidize the Coyotes' losses until a new buyer emerged. Forbes values the team at $134 million, the lowest in the NHL, with annual losses of $24.4 million.

The second annual payment to the NHL is due soon, said Julie Frisoni, the city communications director.

In January, Moody's Investors Services downgraded Glendale's general-obligation bond rating to AA3 from AA2 and cut the outlook to negative.

Matt Jones, a senior vice president for Moody's public finance group, said Glendale has more than twice the debt level of cities with the same rating.

The NHL announced two weeks ago that it had reached a tentative agreement with a potential buyer, former San Jose Sharks chief executive Greg Jamison, after the Coyotes advanced past the first round of the playoffs for the first time since the franchise moved to Arizona.

Few details of the purchase negotiations have been made public. As Jamison negotiates with the NHL, he is simultaneously negotiating a lease agreement with the city for the arena. Frisoni, the city spokeswoman, said the city would like to finalize an agreement in the next several weeks.

"It is important for us to maintain the team here," Frisoni said. The city would suffer a $200 million economic loss over the next 20 years if the Coyotes left, she said.

"I want the Coyotes to go away," Lieberman said, adding that he and other opponents are outnumbered by Coyotes supporters on the council. "How any member can vote to keep the Coyotes and then raise the sales tax and the personal property taxes, I can't condone that."

-- Bloomberg News

Republished from the Winnipeg Free Press print edition May 22, 2012 C3