October 31, 2014 / 11:04 PM / 3 years ago

Bad bets take a big toll on the Super Bowl's host city

GLENDALE Ariz. (Reuters) - Welcome to the sports-crazy home of February's Super Bowl.

Over the last decade or so, this city of 230,000 on Phoenix's northwest border, has reinvented itself from farm town to sports Mecca. There's the dome stadium where the National Football League's Arizona Cardinals play, the National Hockey League's Arizona Coyotes arena, and the new baseball facility where the Los Angeles Dodgers and the Chicago White Sox appear every spring for their pre-season training.

But Glendale's love of sports has come at a cost: red ink and jobs lost. All told, said Glendale Mayor Jerry Weiers, the town's sports fetish has produced "a house of cards."

And even the Super Bowl, the NFL's annual championship extravaganza, will add to the pain. The game, and the partying that comes with it, will rake in hundreds of millions of dollars for Arizona. For Glendale? Another bill. This time because of the security costs.

A visitor to Glendale doesn't have to look far to find evidence of its shattered dreams. At the edges of the sports district are vacant lots where there were supposed to be stores and other commercial developments that would generate taxes to pay off the debt taken on to build the sports facilities.

Glendale now spends over $40 million annually on sports-related expenses, including $15 million to manage the hockey arena, and about $25.5 million on debt service. Officials anticipate $6.9 million in annual revenue. The city's general fund, the pool of tax money used to support city services like police and fire, has suffered big deficits.

Its scorecard: Standard & Poor's Ratings Services downgraded the city's bonds three times since 2012. The Tax Foundation ranks the city's sales tax, at 9 percent, as seventh highest in the nation, and Moody's Investor Service says the direct debt burden is the largest among rated cities in Arizona.

Of course, Glendale's problems aren't uncommon. In 2010, professional sports facilities cost taxpayers roughly $10 billion more than what was typically reported - thanks, in part, to subsidies related to land and infrastructure, said Harvard professor Judith Grant Long.

But "Glendale is a particularly sad story," said Holy Cross Professor Victor Matheson.

FOOL'S GOLD

In the 1950s, Glendale was citrus groves and cotton fields. Then came the housing boom. From 1990 to 2001, population soared 48 percent to nearly 215,000. The city had to beef up public services, but there wasn't enough revenue-generating commercial development. "We had a mall and not much else," said Elaine Scruggs, Glendale's recently retired mayor of 20 years.

    So when the Coyotes, in 2001, wanted to move from Phoenix proper and suggested Glendale, Scruggs pounced. The proposal included 1.6 million square feet of flashy new retail, dubbed Westgate City Center. To build the arena, the city agreed to float a $180 million bond with hopes the development would generate taxes to pay off the debt.

Before the ink was dry on that deal, Glendale was presented with another opportunity. In 2002, the Arizona Cardinals owner, Bill Bidwill, was also looking for a new home. The team targeted a site across the street from the future hockey arena. A stadium would lure more visitors to Westgate, which would mean more tax revenue -- and, possibly, more development.

Mayor Scruggs couldn't believe Glendale's good fortune: "It was like a little kid who caught the fly ball," she said.

By 2006, Glendale was hot stuff. The Cardinals stadium had just opened, and big name acts like the Rolling Stones were headlining.

And it was about to get better. The next year, Glendale announced its third venture: the Chicago White Sox and the Los Angeles Dodgers were looking for a new pre-season training facility.

This time, Glendale joined with Phoenix to construct a 10,000-seat ballpark and 14 practice fields. A 10-minute drive from Westgate, the facility was located just over the Glendale border in Phoenix. But Glendale agreed to issue a $200 million bond if Phoenix pledged 80 percent of the tax revenue. The anticipated economic impact to the region amounted to $19 million per year. And a new retail complex, of course, would generate revenue to pay off the debt.

Glendale's finances were in good shape. The general fund had completed 2006 with $72.5 million in its coffers. And the city's operating budget was $46 million in the black. So the town fathers agreed to pave a road through the desert and waited for new business to arrive.

WELCOME TO THE NIGHTMARE

After the real estate crash, Glendale's property values dropped by half. Property tax collections slumped by 40 percent in two years. And unemployment in the city eventually spiked to 10.2 percent in 2009 from 3.1 percent in 2007.

That wasn't all.

The Coyotes hockey team filed for Chapter 11 bankruptcy in 2009, triggering an NHL takeover. A year later, the land surrounding the new ballpark was foreclosed on without ever breaking ground. The Westgate developer also lost the property to foreclosure. Only a fraction of the proposed development had been built.

By 2012, the city was looking at $105 million in debt payments and not enough revenue to cover it: expenses of $289 million exceeded revenues by $59 million. "The city," recalled city councillor Ian Hugh, "was sinking in its own debt."

COYOTE UGLY

Town officials were also worried about losing the hockey team. After the NHL took over, the league asked the city to pay $25 million to manage the arena as it searched for an owner. Why cave in like that? Simple economics. If the Coyotes left, the city would be stuck with a largely empty arena. "This was the beginning of the city's demise," said former city councilor Joyce Clark.

In 2011, the city pulled $25 million fee from Glendale's sanitation and landfill funds. When no owner was found by the second year, the NHL asked for another $25 million, which came from water, vehicles, technology replacement, and the general fund. "By the third year," said Clark. "We were bleeding." The general fund plummeted from a $66.4 million surplus in 2006 to a $26.7 million deficit in 2012.

To make up the difference, the city raised its sales tax by a third, cut 22 percent of its workforce, and, in a terrible irony, eliminated some youth sports like t-ball and flag football. Emergency Medical Service calls increased by 23 percent over a five-year period, but there were fewer workers to respond. And Glendale's firefighters claimed 911 response times increased by two minutes.

Meanwhile, the NHL found a new owner, IceArizona, that would keep the team in Glendale. But there was a catch. The city had to pay $15 million a year in arena management fees, a cost equal to its entire general fund budget for parks, recreation, library and human services.

Glendale signed the deal, but the arena had already turned into a financial sinkhole. After dropping $50 million on NHL fees, Glendale still had an average $12.8 million in annual debt service related to building the arena. In return, the city earned back just $5.9 million during the first year in arena-tied revenues.

A WAY FORWARD?

Today, the city is preparing for the big game. The Super Bowl could bring in $500 million for Arizona, but Glendale budgeted a $2.1 million expense for security. State lawmakers have refused to help, some citing "an awesome display of fiscal mismanagement."

Still, city officials say there's hope. A new management team and the now-permanent sales tax increase has made Moody's more optimistic. In September, the rating agency switched Glendale's outlook to stable from negative.

The city is also trying to wean itself off sports. For example: A huge American Furniture Warehouse could generate $2.9 million for Glendale in its first year. In August, the city also blessed a $400 million casino resort.

Glendale won't be on the hook for the casino's costs and expects to receive an estimated $26 million over 20 years. Still, critics worry that the deal is another misstep. "Money going into the casino," said Mayor Weiers, "isn't going to the businesses that hung on by their fingernails to stay open."

(Correcting October 30 story to omit the words "it has built" from the second paragraph, adds the sentence "Officials anticipate $6.9 million in annual revenue" in the sixth paragraph, and makes clear that the budget referred to in paragraph 25 is the "general fund budget.")

Reporting by Robin Respaut; Editing by Hank Gilman

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