Coyotes arena plan must overcome skepticism on financing method

Jeremy Duda//April 15, 2016

Coyotes arena plan must overcome skepticism on financing method

Jeremy Duda//April 15, 2016

Los Angeles Kings v Phoenix Coyotes
Arizona Coyotes captain Shane Doane

If the Arizona Coyotes want lawmakers to pass legislation that will allow them to build a new publicly funded hockey arena, the team will have to find a way to overcome the Legislature’s historic opposition to the funding mechanism it hopes to use.

A 49-page draft bill that the Coyotes’ lobbyist quietly shopped around the Senate earlier this year would allow the creation of entities called municipal facilities districts, which would be permitted to issue bonds for the financing of a new arena. The bonds would be partly financed using a form of tax increment financing, in which an entity bonds against future revenues that it expects to generate from the project being financed.

Traditional tax increment financing uses future increases in property tax revenue. The proposal shopped by the Coyotes instead relies on sales taxes that would be generated in the new districts, as well as excise taxes that the district would be permitted to levy.

Lobbyist Jim Norton, whose firm, Axiom Public Affairs, represents the Coyotes, brought the proposed legislation to Senate President Andy Biggs. He urged Norton to speak with Sen. Debbie Lesko, a Peoria Republican and chair of the Senate Finance Committee.

At Norton’s request, Lesko said, she and Biggs also met with National Hockey League Commissioner Gary Bettman. Lesko said the commissioner didn’t really lobby for the proposed legislation, but emphasized that his goal was to keep the Coyotes in Arizona.

Lesko said she’s open to further discussions about the plan, but hasn’t made any commitments.

“I’m not one that usually supports tax increment financing, and (I have) opposed it in the past. But I’m a person that will listen and hear people out,” she said.

The proposed legislation went nowhere this session after Lesko balked at pushing such significant legislation without the time she felt was needed to properly vet it. Lesko also said she has concerns with tax increment-style financing.

The Coyotes, whose lease at Glendale’s Gila River Arena ends at the beginning of 2018, plan to try again next year.

“Unfortunately, we didn’t have adequate time to introduce the bill in this session but plan to do so in the upcoming session and are working closely with a number of state stakeholders,” Coyotes President and CEO Anthony LeBlanc said a in statement emailed to the Arizona Capitol Times.

But lawmakers have been highly suspicious of TIF-style proposals in recent years, with Biggs among their fiercest opponents. Biggs blocked a 2011 proposal, and another plan in 2013 died after passing through the House but failing to receive a hearing Biggs’ Senate.

The Coyotes may benefit next session from the absence of Biggs, who is leaving the Legislature to run for an open seat in Arizona’s 5th Congressional District. However, his successor may not be any more amenable.

Sen. Steve Yarbrough, R-Chandler, is widely viewed as the frontrunner to replace Biggs as Senate president. And Yarbrough’s opinion of tax increment financing isn’t much better.

Yarbrough wouldn’t speculate on whether he’d be willing to allow the Coyotes’ proposal to move forward if he is Senate president next year, but sounded skeptical.

“I’m really cautious about saying something, because I don’t know what their proposal is, but it would be a tough sell,” he said.

Any such proposal will have to get Gov. Doug Ducey’s blessing, as well. Ducey spokesman Daniel Scarpinato said the Governor’s Office couldn’t comment without seeing the specific details of the plan.

“Obviously, as the governor has said, he doesn’t want to see the Coyotes leave. All these teams are important to the economic development of the region and to the state. But in terms of specific policy proposals, especially something that would impact taxes, we would need to see the details,” Scarpinato said.

Asked about the Arizona Diamondbacks’ recent pitch for a new stadium, Ducey withheld judgment on the possibility of new taxpayer-funded arenas for the state’s professional sports franchises.

“Let’s see what’s important to the taxpayers and to the fans and what the situation is. And, once we have the facts, I think people can make better decisions,” Ducey said.

Despite legislative opposition to tax increment financing, David Leibowitz, a spokesman for the Coyotes, expressed optimism about the plan’s feasibility next year.

“You’re talking about a Legislature that has not yet been elected. You’re talking about leadership positions that have not been filled. And you’re talking about a deal that only exists in the abstract. There’s a whole lot of variables that remain to be filled in,” he said.

Leibowitz said the district will allow the arena to pay for itself, while generating revenue that wouldn’t otherwise exist.

“Right now, you have an empty patch of dirt that is not generating tax revenue. If you put a building there, it will generate revenue sufficient to pay for the building itself and to pay for economic development opportunities,” he said.

The bill would permit municipal facility districts to use sales and excise taxes to pay off the bonds for facilities. Tax increment financing has been used in limited circumstances in Arizona, most notably for University of Phoenix Stadium, where the Arizona Cardinals play, and Tucson’s Rio Nuevo project.

Under the draft legislation, a municipal facility district could be formed in any city with a population of at least 150,000, which would accommodate sites in Tempe and downtown Phoenix that the Coyotes are eying. Districts could issue up to $750 million in bonds. Coyotes spokesman Rich Nairn said the team has committed to putting up at least $100 million of its own money for a new arena, as well.

Opposition to the Coyotes’ plan likely won’t be limited to the Legislature. The Arizona Tax Research Association has opposed tax increment financing for years. And Kevin McCarthy, the group’s president, isn’t keen on the new proposal.

McCarthy said he’s concerned that the Coyotes’ plan would take up tax revenue that would otherwise go to the state. And he cautioned that, despite language in the bill exempting the state from liability, taxpayers could still find themselves on the hook if the district can’t pay.

“The bottom line is, when bonds go bad, people are responsible, and that responsibility would ultimately fall, depending on the location, on the city of Phoenix … or the state of Arizona or the Board of Regents if it’s out at Arizona State (University),” McCarthy said.

The Arizona chapter of NAIOP, an industrial and commercial property organization, also opposes the effort. Tim Lawless, the group’s president, said NAIOP objected not due to financing for a Coyotes arena, but because the district would be able to use revenue from a hotel or retail facility for financing.

“We, of course, would still welcome the hockey arena coming more to the fan base in the East Valley, even if that included incentives such as sales TIF recapture to help finance the bond for the arena only,” Lawless said, referring to a possible arena site in Tempe.

“We just have problems with a co-leveraged facility that includes developments like a hotel that seem to give that non-sports facility a competitive advantage over at least more than a half-dozen other hotels already planned by the private sector in Tempe.”

Under the terms of the proposal, up to one-fourth of the facilities financed through the district’s bonds could be used for retail sales. McCarthy said the Coyotes planned for a hotel that would provide additional revenue to the district.