Glendale OK with sports debt, but risks run deep

The Arizona Republic
Wednesday, August 11, 2010
Rebekah L. Sanders

One thing is clear: the picture today would look worse if last summer's bankruptcy had sent the Coyotes to Canada.

Glendale could have lost out on $12 million in back fees owed by the team and eventually paid by the National Hockey League if the Coyotes had moved. The city's debt payments on Arena wouldn't have stopped. Service cuts to residents might have been deeper; city layoffs could have escalated.

The Republic recently combed through budget records to translate the costs and benefits of the city's bold and potentially risky investment into sports, including professional football, hockey and, in the spring, baseball. The city also may become home to amateur basketball, including the U.S. Olympic teams.

The score sheet: Glendale has collected enough money every year to pay for Arena except during the NHL lockout in 2005-06. The key will be to secure an owner so the team continues to generate revenue for the city to pay the debt.

When it comes to spring-training baseball, the city is paying the debt with borrowed money and long-term repayment plans have been hampered by the down economy.

The risk factors aren't the same for the football stadium or USA Basketball, which were built or planned to be built without city cash for the most part. Arena

The Coyotes' sold-out playoff run in the spring undoubtedly bolstered coffers. Mega events such as a U2 concert and WrestleMania at neighboring University of Phoenix Stadium, which brought thousands of event-goers to Westgate City Center, likely boosted the city's financial take in the sports district.

Glendale pays its debt on the city-owned arena in part with rent and fees from the team and a sliver of property taxes , but more so from sales-tax revenues at the arena and nearby Westgate, the shopping complex that was planned along with the 7-year-old arena. The dining and shopping largely spurred by sports games around Westgate brought $12.8 million in sales-tax revenues in 11 months last fiscal year.

The city paid nearly $12 million in debt service on the arena, including a portion paid through the property taxes.

Camelback Ranch Glendale

The city's other big sports prize was landing the Los Angeles Dodgers and Chicago White Sox, who train at Camelback Ranch Glendale.

Like the arena, Glendale borrowed money to construct the spring-training ballpark that opened in 2009.

The city has been forced to pay the ballpark debt with borrowed money.

The tourism tax revenues and a commercial project called Main Street that were suppose to pay the city's debt for the project have faltered.

By 2014, the loan that Glendale took out as reserve to pay baseball debt will be depleted. By 2018, the city will face a $15.2 million ballpark payment. There's a question whether $9.4 million the city expected from tourism taxes collected by the Arizona Sports and Tourism Authority will materialize because of the recession.

And Main Street has gone un-built. The developers, HB Equities, who did not return calls, continue to chase funding to no apparent avail.

City staff would provide no details on their alternative plans to generate revenue to pay the debt.

Other venues

Two sports investments Glendale doesn't have direct responsibility for are University of Phoenix Stadium, which opened in 2006, and the USA Basketball complex, which is still un-built.

USA Basketball, the national Olympic training facility that Glendale expected developer HB Equities to build, is stalled along with Main Street.

As for the football stadium, the sports authority built the dome with revenue from a countywide tourism tax.

Cost and benefits

There's no doubt the sports district has raised Glendale's profile. That direct payoff is hard to calculate, but developers have built offices and stores near the sports venues and some companies have relocated nearby. Easier to quantify is the money Glendale collects to pay off the city's debt. On that front, the city has found ways to cover its costs, and leaders say they are confidentin securing a Coyotes owner for the arena and solving the financial challenges at the spring-training ballpark.

Residents of Glendale aren't the only ones wanting answers.

The recession has brought into focus for many taxpayers the debt burdens of cities across the state, said Kevin McCarthy, president of the Arizona Tax Research Association.

As money grows tight, cities have had to find ways to cut back.

"One of the areas you don't have any flexibility on is paying the debt service," he said.

Like a home mortgage, "you're stuck" with the loan, he said.

If a city's debt payments grow too large to handle, the options please nobody: raise taxes, raise fees or cut services. In extreme cases, a handful of cities have declared bankruptcy.

None of that has happened in Glendale because of the city's sports investments.

But if Glendale had to cut money from its budget to cover sports debt, it would be painful.

The combined sports debt payments are $24 million or more. The arena's annual cost is about $11 million, while the city currently pays $13 million for Camelback Ranch.

McCarthy said he hasn't evaluated Glendale's sports debt in detail. But he knows "they've got a lot of it."

That leads to another significant number: when Glendale pays off its sports loans with interest, the cost for the arena and ballpark will approach a billion dollars, about $849 million.