When the Winnipeg Jets decamped for Phoenix in 1996, skeptics wondered if ice hockey would sell in the Valley of the Sun.
Turns out those skeptics were on to something, as the franchise — since renamed the Coyotes — has experienced years of financial turmoil, ownership changes and taxpayer bailouts.
Now the team and the National Hockey League, with the help of a local Republican lawmaker, are gunning to create a new tax scheme that could end up funneling public money to the team in perpetuity.
Earlier this year, Mesa Republican Sen. Bob Wolsey introduced legislation that would allow for the creation of a new type of taxing entity known as a community engagement district, in which tax revenue could be diverted to pay for the construction and maintenance of sports facilities.
The measure has received the enthusiastic support of both the Coyotes team management and NHL Commissioner Gary Bettman. In an open March 7 letter to Arizona Senate President Steven Yarbrough and House Speaker John Mesnard, both Chandler Republicans, Bettman said a new arena was necessary to put the Coyotes “on the path to success,” and that Wolsey’s bill provided a way for the team to do so without “making use of any existing state tax dollars.”
These sentiments were echoed by Coyotes majority owner Andrew Barroway, who said in a same-day press release that the team was losing millions annually at its Gila River Arena location in Glendale, and that without an infusion of tax money to build a new arena, the team would likely leave the state.
The Coyotes rank 29th in the 30-team NHL in average attendance this season.
A troubled past
The franchise set up shop in suburban Glendale in 2003, after the city government paid to build a $100 million arena for the team, which had been playing at America West Arena (now Talking Stick Resort Arena) in downtown Phoenix.
But despite this initial public subsidy, the Coyotes experienced severe financial problems, ultimately resulting in a messy 2009 bankruptcy and a takeover by the league.
To keep the franchise afloat and remaining at Gila River Arena, the city has approved a steady stream of public subsidies. Under the terms of the latest deal, signed in 2013, the city agreed to pay an annual $15 million “arena management fee” to the team in exchange for $500,000 in rent and a promise that the Coyotes would remain in Glendale until 2028.
This arrangement fell apart in early 2015, when Glendale pulled out over conflict of interest claims, infuriating Coyotes management and sending them in search of an alternative deal less dependent on the whims of a single city government.
What the franchise eventually settled on in mid-2016 was a plan to claim some $225 million in public funds through the creation of community engagement districts.
Under the Coyotes’ plan, a host city could opt to set up a CED, in which up to half of eligible state sales tax revenue — which typically would go to the state general fund — could be diverted to pay for construction of a sports facility. The CED would also gain the power to independently add an additional 2 percent surcharge.
The plan failed to gain traction at the tail end of the 2016 legislative session, but has since attracted the enthusiastic sponsorship of Wolsey, who dubiously claims that it keeps the team in Arizona without using state tax money. Instead, he says, it would “create new revenue, new jobs and new tax dollars where today none of that exists.”
The Arizona Republic reported that the Coyotes are exploring a location in Mesa, but Wolsey said he crafted the bill to be “location agnostic.”
‘Least transparent way’
Sean McCarthy, senior research analyst for the Arizona Tax Research Association, described the bill as “the least transparent way to provide a public subsidy to a team.”
Contrary to supporters’ claims that the bill would not touch state funds, McCarthy argues that the diversion of sales tax revenue from the general fund is in effect no different than using the tax code as a means of appropriating funds.
A Senate fact sheet on the bill acknowledges that it would have a negative fiscal impact on the state general fund, both from the diversion of funds and from any migration of economic activity from “from fully taxable areas to the CED.”
McCarthy also criticized the claim that a CED would produce economic growth, telling Watchdog that most of the activity associated with stadiums could be classified as commercial retail and that “moving commercial retail around does little to stimulate your economy. You do nothing to change disposable income in an area.”
This squares pretty closely with the economic literature on sports facility subsidies, which has repeatedly found that they produce little in the way of economic benefits either for cities or the taxpayer.
Aside from fiscal conservatives, opposition is also percolating among Senate Democrats, and Yarbrough has told the Arizona Republic that it does not yet have the votes to pass.
The Senate Transportation and Technology Committee approved the measure on a 6-1 vote, but it has not been scheduled for a floor consideration.