Coyote Blog

I wasn't really going to post on this but since it is making the news, Equal Marriage Arizona (of which I am co-chair) is putting on hold our efforts to amend the Arizona Constitution in 2014 and will defer to 2016.

At some point when this quiets down, I will write an extended article about the experience, which was certainly a learning exercise for me (and by the way did nothing to dissuade me from my general default stance of avoiding politics like the plague).

We honestly thought that an effort initiated and led by Republicans and libertarians was the right choice for a heavily red state like Arizona, and I am still convinced of that.  In fact, I think we knocked some of the Conservative opposition on their heels, and several Conservative commentators publicly stated that ours was a dangerously (for them) effective approach.  In addition, a number of prominent Republicans took me aside and thanked me -- they felt that getting this passed would help save the party from its worst impulses.

From the beginning, I had some nervousness that our language was not perfect (though the lawyers were happy with it), but it was polling well and even more than a year in advance we were polling over 50% of probable voters in 2014.

The buzz saw we ran into was not from the  Conservative opposition but from those we thought of as our allies.  Several prominent LGBT and gay marriage groups turned against us early, and pressured nearly every other group on the Left to oppose us, even getting a number of groups who had endorsed us early to withdraw their endorsements.

The reasons for this were myriad, and I may write that story at some future date.  Some of the wounds were self-inflicted on our part, and some were frankly due to my failings as a leader in this political arena.  But I am convinced that these groups were never, ever going to support us.   Some groups honestly worried that 2014 was too early in Arizona.  Others had... other concerns.  Scott Shackford of Reason makes some pretty good guesses, but there were issues beyond these.

Let me bring you up to speed:  The NHL owns the Phoenix Coyotes hockey team, having taken them over in bankruptcy.  It needs to sell the team and is demanding $200 million for the team, having promised the league owners it would not accept anything less (so they will not take a loss in the investment).  The team is worth, however, something like $100 million, at least if it stays in Arizona.

The team plays in a stadium built by the relatively small city (250,000 people) of Glendale, which put something like $300 million of taxpayer money into the stadium and has provided operating subsidies to the team the last several years that probably total another $100 million, at least.  The city has a bad hand, but keeps doubling down on its bet to try to retain the team.

The problem, of course, is the $100 million difference in the bid-ask for the team.  Glendale first tried to fix this by agreeing in a previous deal couple of years ago to basically give the buyer $100 million of taxpayer money to bridge the bid-ask gap.  The Goldwater Institute sued, saying that the Arizona Constitution pretty clearly states the government can't directly subsidize commercial interests.  They prevailed (before it ever reached court) and the deal died.

The only way left for Glendale to make the deal happen was to give a buyer $100 million in taxpayer money but to do so in a more disguised manner.  The one option they had was in the stadium management contract.  If they agreed, say, to pay the buyer $10 million a year over market rates for the stadium management contract, over 15 years that has about a $100 million present value.  They can get away with this because there is no objective valuation of what a management contract would cost on the open market.

But their ability to do this is, thankfully, about to die.  Under intense pressure, and in a fit of good government that I am sure Glendale regrets, it actually went out and sought arms-length contracts for stadium management from third parties.  It is enormously unlikely the city will accept any of these bids, because it needs the stadium contract as a carrot for someone to buy the Coyotes at the NHL's inflated price.  Besides, I bid on large contracts a lot and I have often been presented with bid packages from an entity that had no intention of awarding, but wanted me to go through all the bid effort just to establish an internal price benchmark or to keep their preferred provider honest.  I can smell these from a mile away now.

The problem Glendale will have, though, is that when these 3rd party bids become public (which they inevitably will), it will then be impossible to hide the implicit subsidy in the management contract.  Presumably, taxpayers then will push back on any future deals using this dodge, though Glendale citizens seem pretty supine so one never knows.  Also, the city can also tweak the responsibilities of the stadium contract, thereby allowing them to claim that comparisons against these past bids are apples and oranges (though this will be hard as I expect arms-length bids around $5 million a year vs. $15 million they propose to pay the team buyer).

PS-  It is hilarious to see worried comments from Gary Bettman (NHL Commissioner) about how hard on Glendale it will be if the Coyotes leave town.  Merely lowering his asking price to something less than 2x the market price would solve the problem in an instant.

I am becoming increasingly enamored of the Arizona Constitution's "gift clause," even if it has not been enforced evenly in the past.   This sensible Constitutional provision requires that neither the state nor any municipality in it may “give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation.”

This has been interpreted by the courts as meaning that if a state or municipal government gives money to a private company, it must get something of value back - ie it pays money to GM and gets a work truck back.  But politicians will be politicians and have stretched this rule in the past out of all meaning, by saying that they are getting "soft" benefits back.  In other words, they could subsidize the rent of a bookstore because reading is important to the community.  Silly?  Not in California:

The city spent $1.6 million in federal grant money to bring Borders into the Pico Rivera Towne Center and to help pay its rent for nearly eight years.

Now the bookstore at 8852 Washington Blvd. is among the 200 Borders stores closing by April in the wake of the company filing for Chapter 11 bankruptcy reorganization.

But the city still faces paying rent on the soon-to-be vacated 18,100-square-foot site, along with other costs associated with 2002 agreements it made with Borders and with Vestar Development Co., which owns the Towne Center....

Officials said the decision to bring a bookstore into the community was a quality-of-life issue.

So the gift clause originally was authored to stop handouts to railroads and such, but certainly should prevent stuff like this.  When it did not, our Goldwater Institute sued, and it was successful in reigning in these gift clause exclusions.  This is the ruling from a suit over a $97 giveaway to a new mall (the giveaway was nominally disguised as a parking lot).

Indeed, in today’s unanimous decision, penned by Chief Justice Andrew D. Hurwitz, the five Supreme Court judges say that indirect public benefits — like, apparently, beating out Scottsdale for the sale tax from Bloomingdales — aren’t enough to justify a giveaway to a private party.

Previous courts who’ve held that, they say, have misread precedent.

“In short, although neither [of two Supreme Court precedents] held that indirect benefits enjoyed by a public agency as a result of buying something from a private entity constitute consideration, we understand how that notion might have been mistakenly inferred from language in our opinions,” they say. Now that they’ve clarified, the justices seem to be saying, the appellate court must examine whether the direct benefit the city of Phoenix gets — aka. those parking spaces — is enough to justify the giveaway.

For the record, the Supreme Court suggests that the parking garage is not, likely, benefit enough to justify such a tax giveaway.

“We find it difficult to believe that the 3,180 parking places have a value anywhere near the payment potentially required under the Agreement,” its opinion finds. “The Agreement therefore quite likely violates the Gift Clause.”

This was a particularly awful subsidy which tried to move a Nordstrom's one whole mile, over the Scottsdale border into Phoenix (update here).

This is the heart of why Goldwater needs to continue to stand strong against the proposed $100 million Glendale subsidy of the Phoenix Coyote's hockey team purchase.  The city of Glendale and the buyer Matthew Hulzinger (who claims the bond issues is totally guaranteed and safe, raising the question of why he could not have gotten private financing instead) have rallied everyone from our local paper to John McCain to to task of excoriating Goldwater for standing up for the state Constitution.  They claim the deal makes a lot of financial sense.

Beyond the cities BS "total impact" numbers, I ask, "so what?"  This is an important Constitutional principle.  As America slides into a European-style corporate state, I can't think of anything more appropriate than drawing the line on corporate welfare here in Arizona (its certainly a more useful endeavor than some of the goofy legislation currently pouring out of our state house).  Heck, I would like to see a gift clause in the US Constitution

Several days ago, I wrote how our local paper, the Arizona Republic, was engaging in a coordinated campaign to get the city of Glendale to subsidize the private purchase of our professional hockey team with a $200 million bond issue.  The logic of this is mainly to save the previous $180 million bond issue the city unwisely issued several years ago to build an arena for this same hockey time as well as the sweetheart commercial real estate deals it has cut adjacent to the stadium.   All in all, the city proposes to spend a cumulative $380 million of public money to hold on to an asset valued by third parties at $ 116 million.  And through all of this spending, taxpayers will end up with not a dime of equity in this asset.

At the time, I thought the campaign had been relentless, going on day after day with both editorials and news articles making cases to subsidize the team, and hammering the Goldwater Institute for actually questioning the legality of transaction.  I mean God forbid anyone would actually interpret the Arizona Constitution "gift clause" that says governments in the state cannot give money to private businesses as potentially barring Glendale from giving money to a private investor so he can buy the hockey team.

But when I called the campaign relentless, little did I know it would continue day after day through the rest of the week.  Every day we get a new article that is basically an editorial in disguise, with the opposing position, if included, down around paragraph 25.   Today's is just a masterpiece of such yellow journalism, which includes no opposing viewpoint at all, and includes this classic gem that is almost a caricature of itself:

Rick Myers and his wife have worked as part-time ticket-takers since 2004, the year after Jobing.com Arena opened and they visited for the first time.

"This arena is not brick and mortar, ice and air-conditioning. This arena is a family," he said.

Craig Van Kessel, a disabled military veteran, agreed.

He said six months after getting a job with the team, when he had major surgery, his co-workers called, sent cards and offered help. The team also donates prizes each year for a Western Amputee Golf Association tournament that Kessel helps organize.

If the team leaves, he said, it affects "us little people."

John Minor, a guest services employee, said he counts friendships among the fans he meets at the arena, while Kyle Olson, director of arena events, said he's taught his toddler to howl like a coyote.

Can I barf now?  Seriously, if you were doing a caricature of bad anecdotal arguments for a typical concentrated-benefits-diffuse-costs government program, could you do any better than this?  We are talking about $200 freaking million dollars here.

Nowhere in any of its editorials or news articles acting as thinly veiled editorials does the AZ Republic reveal that it is an enormously interested party to the transaction.  The Sports Section sells papers, and the presence of an additional major league franchise adds a hard to measure but most definite contribution to the paper's bottom line.

Postscript: The key issue that spurred this is that the city's bond issue is facing higher than expected interest costs.  The city and the AZ Republic are trying to lay the blame on this on Goldwater for stirring up bad karma.  But in fact there are at least six factors for why bond interest rates might be higher:

• The major bond ratings agencies recently put the city of Glendale on a credit watch list
• Sales tax revenues that pay for the bonds are way down in AZ and Glendale
• The city is investing $200 million in a $116 million dollar asset without getting any equity
• The city has a history of failed bond issues, as evidenced by the previous $180 bond issue they are trying to bail out with this one
• There is a general sense of wariness nationwide in government finances being overdrawn that may be spilling over into the bond market
• A local think tank has raised legal questions about the deal — legal questions that turned out to be correct in a parallel case.

Incredibly, our paper has spend over a week harping on just one of these, which to my mind seems the most trivial.

Postscript #2: And by the way, this team is in bankruptcy.  Where is the plan for how that will be avoided in the future?  Won't we be in the same spot five years from now, just with twice as much bond debt?

Via the Arizona Republic, from a deposition by Sheriff Joe Arpaio:

Arpaio says he was not well versed on the Fourth Amendment to the U.S. Constitution, or its counterpart in the Arizona Constitution, which prohibit unreasonable searches and seizures.

Yeah, no kidding.  This is just kind of bizarre.  I get the whole ghost-writer thing, but at least Obama actually seems to have read the book that was ghost-written for him:

Maricopa County Sheriff Joe Arpaio has not read the book he co-authored in 2008, which includes information on Arpaio's philosophy on America's immigration problem and how to cope with the nation's porous borders.

Arpaio's lack of familiarity with the book, "Joe's Law - America's Toughest Sheriff Takes on Illegal Immigration, Drugs and Everything Else That Threatens America," was among the revelations to emerge from a nine-hour deposition the sheriff gave as part of a racial-profiling lawsuit filed against the Sheriff's Office.

Update: There is a spin in the article that Sheriff Joe is just a delegator, like any good corporate executive.  I am generally considered to be far more comfortable with delegation than average, and even I know a lot more about my business than Sheriff Joe does about his.    Part of the reason is likely that I don't spend 95% of my time on media and PR events to boost my name recognition at public expense.  And you can be dang sure that I know certain pieces of legislation that are important to my business, like the Fair Labor Standards Act and the Service Contract Act, better than my lawyers.