Coyote Blog

As a former hater, I have really enjoyed the World Cup this year.  I think an unsung part of why so many people have been coming around in the States is having ESPN broadcast every game, instead of just seeing two or three here.  Seeing all the games lets one start getting to know the players and the teams, develop favorites, etc.

However, like most Americans, I do find it, at best, humorous to watch folks act like they have been gut-shot every time someone brushes their jersey.  I talked to a friend of mine who used to manage NHL teams, and said that it would be funny to do a parody with ice hockey players falling and writhing on the ground every time they were touched.  There would be 10 guys laying on the ice in about 30 seconds.

Not quite the same idea, but I thought this parody was pretty funny

When I read this in our local paper, alarm bells immediately went off:

A friendship cemented while working together on the state’s economic development efforts has led to a new partnership linking Roy Vallee, the former Avnet Inc. chairman and chief executive officer, with private developer Don Cardon.

Great, two folks who have focused on bringing crony corporatist benefits to selected local businesses and business relocations are going into business together.  I don't know these guys, I am sure they are fine folks, but my first thought was a business that leveraged their connections with government to create private profits.

Reading further, this seems like a good guess:

The two metro Phoenix business leaders say they will collaborate on large commercial developments, including those with a special public-interest focus and those with special complexities....

Cardon spent three years at the Arizona Commerce Authority, a public-private partnership, and the predecessor Arizona Commerce Department. Aside from that, he perhaps is best-known as a driving force behind CityScape, the three-block, $1.2 billion mixed-use development in downtown Phoenix. He cites as a strength his ability to bring private and public interests together on a project.

Yep, I definitely think I am on to something:

The firm will strive to encourage a “collective vision” and “make sure projects are worthy of investment and will be successful,” Cardon said. “Everything we do will involve public value, enriching the quality of life.”

You know the type of project -- the ones where the city / state / Feds justify investing millions of taxpayer money into private projects because "they create jobs" (like those at Solyndra).  In fact, the two partners are already polishing up this mantra, which I am sure we will hear over and over:

Deals typically will exceed $100 million and will create hundreds of jobs, both in the development stage and when complete, he said. The company , however, will maintain a fairly lean staff.

“We’re not a big employer, but we’ll be a job creator,” he said.

I want to make a couple of quick points:

• Investments whose primary return is "jobs" are not investments, because jobs are a cost, not an income stream.  Investing public money to create jobs means that one is investing money now so that it incurs costs later. 
• All successful capitalist enterprises that make  a profit by definition create "public value" and "enrich the quality of life."  Otherwise no one would buy their product or service and they would fail.  In fact, only publicly-funded projects can evade this sort of accountability.  When it is said that these projects deliver "public value," what is meant is that they deliver benefits that a few self-selected people have defined as somehow interesting to the public, but which it turns out the public (when given a choice) is unwilling to pay for.  Which is how we get the local town of Glendale continuing to subsidize an ice hockey team for $25 million or so a year.

I found this article in the Arizona Republic, our local rag, almost criminal.  As far as it goes, I think the facts are correct.  What is amazing is what it leaves out.  First, the article:

Glendale administrators propose cutting nearly a quarter of the city's employees, or 249 positions, if voters approve a ballot measure in November to repeal a sales-tax hike.

Repeal of the 0.7 percentage-point tax hike that took effect last month would mean the loss of $11 million this year and $25 million annually through 2017, according to city estimates.

The City Council had approved the temporary increase to shore up its deficit-ridden general fund after laying off 49 employees and cutting $10 million from departments at the start of this fiscal year....

Proposed cuts include shuttering two of the three city libraries, one of its two aquatic centers, the TV station and all city festivals, including Glendale Glitters.

The article continues with the usual panic about cuts in police and firefighters and libraries and parks,  etc. etc.  What the article does not mention except in passing in paragraph 12 is the reason for the tax increase and the budget problems in the first place.  Over heated opposition in the community, the City Council, which has enjoyed pretending to be big shot Donald Trumps over the last few years with taxpayer money, handed a private individual $25 million a year to keep the ice hockey team in town, an ice hockey team that has the lowest attendance in the league despite doing fairly well the last few years.  This is on top of years of other subsidies and the taxpayer-funded $300 million stadium.   The numbers line up exactly -- a new $25 million a year subsidy and a new $25 million a year tax, and the paper cannot even connect these dots, even when they were directly connected in real time (ie the tax was specifically justified to pay for the subsidy).

What the article entirely fails to mention is that, given no voice in these corporatist extravagances in Glendale (the tiny town of 250,000 has also subsidized an NFL franchise and a couple of MLB teams), the only way the citizens of this town have any way to exercise accountability is to vote down the tax that enables this corporate handout.  They were not allowed to vote on the deal itself.  This is not a bunch of wacky red-staters voting to decimate the parks departments, as the city and the paper would like you to believe, but a citizenship that is tired of the idiotic corporate cronyism in the Glendale city council and are looking for some way, any way, to enforce some accountability.

This is the media and the state in bed together promoting the larger state.  Glendale's problems are entirely self-imposed, spending huge amounts of tax money on subsidizing sports teams and real estate ventures.  When these all failed like so many Solyndras, they are trying to make this out to be a tax shortfall, when in fact it is spending idiocy.

The media always seems to participate as a cheerleader in this statism, but local papers have a special interest in promoting this sort of sports corporatism.  Just about the only thing that sells dead-tree newspapers any more is the sports section.  I would love to see what would happen to circulation rates if they cut the sports section.  So any state actions that add professional sports franchises or keeps them in town contribute directly to the newspapers' survival.

For years now I have lampooned the crazy money Glendale, AZ has thrown at the Phoenix ice hockey team in a desperate attempt to trade taxpayer money for prestige.  Let me bring you up to date:

Years ago a town of about 250,000 people committed about $200 million in taxpayer money to build a stadium for a professional ice hockey team, to attract it away from Scottsdale or downtown Phoenix to what is frankly the ass-end of the metropolitan area  (I have no problems with the west side of town, but from a geographic, demographic, and economic logic standpoint this was roughly equivalent to moving the LA Lakers to Riverside or San Bernardino).

For some weird reason, moving an ice hockey team to the desert with no base of hockey fans and locating it a good 45 minutes from the wealthier parts of town caused the team to go bankrupt.  Lots of people were willing to pay good money to haul the team back to Canada where there are, you know, ice hockey fans, but few wanted to pay good money to keep it on the west side of Phoenix.

So enter the NHL, which took the team over.  The NHL commissioner promised the other owners that it would not lose money on the deal, so it set the price of the team not at the market price (which appears to be around $100 million based on the Atlanta sale) but based on its costs, which were about $200 million.   It has agreed to try to keep the team in Glendale, but only if the city covers its operating losses of $25 million each year, which incredibly, the city has done for two years (note this is $100 a year for every man, woman, and child in the city to subsidize a hockey team).

The team may be worth $200 million in Canada, but it is only worth $100 million in Glendale (at most) so it does not sell.  The city agreed to make up the $100 million difference  with a bond issue (and throw another $90+ million in to boot), which almost closed the deal with one buyer until the Goldwater Institute pointed out that this kind of subsidy was illegal under the AZ constitution.  And so the situation sits.  The asking price is still $200 million, which no one will pay if they have to keep the team in Glendale.  And the city keeps forking over $25 million a year to the NHL to keep the team running.

OK, so that is the background.  Here is the new news.

The league, which purchased the Phoenix Coyotes at a bankruptcy court auction in 2009, has been managing the team and city-owned arena until an owner willing to keep the team in Glendale can be found. The city paid $25 million to the NHL during the 2010-11 season and pledged another $25 million for the current season, which is expected to come due in May.

To fulfill that pledge, the city put $20 million in escrow and still needs to come up with $5 million.

The hefty payouts have nearly drained the city's reserves, leading to a recent drop in the city's bond rating.

And the city is looking at a deficit next fiscal year that one councilwoman has estimated could reach $30 million. A possible sales-tax hike, furloughs and program cuts are on the table to close the spending gap....

During Tuesday's budget talks, [Glendale Mayor] Scruggs asked council members to join her in signing a letter to NHL Commissioner Gary Bettman to "release us from that $20 million in escrow and let us pay over time."

None of the councilmembers responded to her request. Councilman Manny Martinez later told The Republic he would "have to think about it in light of what is going on."

Scruggs said if the city can get back the $20 million from escrow and pay the NHL an initial $5 million, "our problems and everything our employees are fearful of would pretty much go away."

Translation:  Dear NHL, we are idiots and committed a bunch of money to a stupid purpose that we can't really afford.  Would you pretty please let us out of our commitment?  Hilarious and pathetic.  The chickens are coming home to roost by the millions.

Even funnier, the Glendale mayor is trying to blame the NHL for bad faith

The mayor said she and four others councilmembers pledged the second payout last May because city staff and NHL Deputy Commissioner Bill Daly said a deal with a team owner was nearly complete and that "we should never have to pay that $25 million."

Scruggs said the city was told the money was just a place holder so that the NHL wouldn't move the team out of Glendale.

"Given the stress that our budget is under, there should be a payment plan developed," Scruggs said. "They have no right to that money. They held us hostage for a year."

She said the NHL never intended to do business with Chicago businessman Matt Hulsizer, who wanted to buy the team but walked away from the negotiation table in frustration just weeks after the council pledged the second payment to the NHL....

Scruggs said the NHL last spring "misled us and they can't do this to our city."

In fact, the NHL was totally serious about the Hulsizer deal.  That deal fell through not because the NHL screwed up, but because Glendale did.  The deal fell through because Glendale had committed to a subsidy of the deal which may not have been Constitutional, and even if it had proved legal, became impossible when Glendale's bond ratings started tanking and they realized they could not move the paper.  Glendale officials have been amateurish and dishonest through this entire process.

By the way, several years ago, Jim Balsillie offered a deal worth over $200 million for the team, PLUS he offered to pay off something like $150 million of Glendale's stadium debt.  Glendale opposed the deal, because they would have been left with an empty stadium and tens of millions in debt (given the crash in RIM's fortunes, the offer is unlikely to be renewed).

Glendale is likely going to wish they had taken the first offer.  There is a very good chance that Glendale will lose the team without any sort of payment on their debt and after paying $25 million a year to the NHL.  Glendale will end up with hundreds of millions in debt, an empty stadium, a junk-level bond rating and a busted budget.

There is a saying in the investment world - your first loss is your best loss.  Glendale is about to learn this very expensive lesson.

Via the WSJ

Glendale, Ariz., is selling about $136 million in debt in the municipal-bond market this week, just days after Moody's Investors Service cut its bond rating because of the desert city's obligations to cover losses on a National Hockey League franchise.

In exchange for the NHL's promise to manage team operations and keep the team in Glendale until a new owner is found, the city agreed to compensate the league, the city's executive communications director, Julie Frisoni, said.

The Coyotes filed for bankruptcy protection in 2009, and that spring, the NHL became the owner of the team. In exchange for keeping the team, the city signed an agreement to absorb up to $25 million of the team's losses in both 2011 and 2012, in anticipation of finding a new owner, Moody's analysts said.

Glendale is slowly sinking itself in a mountain of debt to pursue its insane strategy to subsidize every billionaire sports owner in Arizona.  The town of 225,000 people is spending $25,000,000 to fund the operating losses of a freaking hockey team -- that's nearly $500 a year for every 4-person family in the city.  Nuts.  And this is just their operating subsidy, it does not include debt service on the $300 million stadium it built for the team.

The problem is that the team is worth less than $100 million in Arizona (based on recent sales comps of other NHL franchises in warm cities like Atlanta) but might be worth $300-$400 million if moved to Canada (Jim Balsillie made an offer in this range, including an offer to pay down $150 million or so of the city's debt, before RIM stock started to crash).  The NHL, which owns the team now, has promised owners that they will not take a penny less than $200 million for the team, and that they will not suffer any operating losses.

So, because they simply cannot admit they were wrong to subsidize the team the first time around, to keep the team in Glendale the city must either fund $25 million a year in team operating losses or it must pony up $100 million or so to bridge the team's $100 million value in Arizona and the league's $200 million price tag (something they tried and failed to do last year when the Goldwater Institute pointed out that such a subsidy was unconstitutional in AZ.

I repeat, what a big freaking mess.  How do you avoid it?  The only way is the Wargames strategy, ie the only winning move is not to lay the sports team subsidy game in the first place.

Spend a few nights listening to the news on TV, and you will quickly discover the one of the bedrock logical fallacies of political discourse:

If it's good, the government should subsidize it.  If it's bad, the government should ban it.  If outcomes are in any way perceived by any group to be sub-optimal, then the government should regulate it.  Anyone who opposes these bans, subsidies, and regulations must therefore be a supporter of bad outcomes, hate poor people, want people to get sick and die, etc.

Just last night, I was watching the local news (something I almost never do) and saw a story of one of those kids' bouncy houses that blew out of someone's backyard into a road.  There was a girl inside who was scared but unhurt  (after all, she was surrounded on six sides by giant airbags).   Of course the conclusion of the story was a call for more government regulation of tie downs for private backyard bouncy houses.  And those of us who think it's absurd for the government to micro-regulate such things, particularly after a single freak accident when no one was hurt -- we just want to see children die, of course.

Which brings me to this little gem in a local blog, which reflects a feeling held by many area sports fans.  Remember that I have supported the Goldwater Institute in their opposition to the city of Glendale giving a rich guy $200 million to buy our NHL ice hockey team and keep it here.    My (and I presume Goldwater's) motivation has been opposition to a huge government subsidy that equates to nearly $1000 for every man, woman, and child in Glendale.  This subsidy appears illegal under the Arizona Constitution.  But that is not how political discourse works.  We are not defending the Constitution, we just hate hockey (emphasis added)

If you believe Canadian newspapers, tonight's game against the Detroit Red Wings will be the Phoenix Coyotes last game in the desert.

Canadians like hockey. Judging by attendance at Coyotes games, Phoenicians don't (at least not enough to drive to west side), which is why Canadians are so optimistic that their beloved Winnipeg Jets will be returning to our overly polite neighbors to the north.

The Coyotes ended the season with the second worst attendance in the NHL. That, coupled with the Goldwater Institute's crusade to drive the team out of the Valley, is not helping the city of Glendale's attempt to keep the team.

A few facts to remember:

• As the article states, local residents have already voted with their feet, since the team has nearly the lowest attendance in the league despite going to the playoffs both last year and this year.  They have trouble selling out playoff games.
• The team has lost money every year it has been here.  It lost something like $40 million this year
• The team is worth $100 million here in Phoenix.  That is the going rate for warm-market teams.  The buyer is willing to pay $100 million of his own money for the team.   So why is a subsidy needed?  The NHL insists on selling the team for $200 million or more.  Though it piously claims to want to keep hockey in Arizona, it is selling the team for price than can only be paid by buyers who want to move the team.
• The City of Glendale appears to have lied outright in selling this deal to the public.  In particular, it claimed the $100 million was not a giveaway, but a payment for the team's rights to charge for parking.  But many insiders say the City always retained this right, and it strains credulity that while losing money for seven years, the team would not have exercised this right if it really owned it.
• Glendale has only itself to blame, confounding an already difficult marketing task (ice hockey in the desert) by putting the stadium on the far end of a sprawling city.   The location is roughly the equivalent in terms of distance and relationship to the metropolitan area of moving the Chicago Blackhawks or Bulls stadium to Gary, Indiana.  The stadium ended up in Glendale because neither Tempe, Scottsdale, nor Phoenix was willing to make a $200 million, 30-year taxpayer-funded bet on the profitability of ice hockey.

I have never really liked to wallow much in the accusation and counter-accusations of media bias.  But I am coming around to the hypothesis that the media is neither liberal or conservative but has a big government bias.  Recently, as in this article, the Arizona Republic (our daily paper) has been going after the Goldwater Institute for opposing what amounts to a $200 million subsidy to a buyer of our hockey team.

The short story is that after the city of Glendale blew a bunch of money for a hockey stadium in the desert, it turns out hockey is not very popular here (surprise).  So the team went bankrupt, and threatened to move.  To keep it from moving, the city of Glendale wants to throw more good money after bad and subsidize the new buyer.   Goldwater is challenging the subsidy as illegal under AZ law.

As I noted in the previous article, third parties value the Coyotes at $117 million.  So with this new bond issue, they will have run up $380 million in debt to keep a $117 million asset in town.  Further, they will have basically paid the entire purchase price of the team (and more) without getting a drop of equity in return.  All they get is the right to charge for parking around the arena, which is currently free.  This at first makes some sense (though the value of the concession is never mentioned) but in fact it is ludicrous as well.  The entire reason for the subsidy, supposedly, is to protect the mall/apartment/office complex around the stadium that the city cut sweetheart deals with developers to make happen.  So now they are going to charge for parking -- what is going to happen to all those businesses they supposedly are doing this for when their customer's parking is not longer free?

Anyway, the Republic editorialized against Goldwater on Sunday (in an editorial titled "Back off, Goldwater Institute") saying that they were hurting taxpayers because if the new bond issue and team sale fails, then there won't be any revenue to pay the old bond issue.  Its hard to figure how this is any different from doubling down at the roulette table in hopes of making back one's past losses.  And, Goldwater opposed the first bond issue too.

Now, the Republic has editorialized again, this time in a nominally news article.  They argue that by pointing out the potential illegality of the subsidy, Goldwater is messing up their bond interest rates.  I kid you not:

As Glendale prepares to sell bonds to finance its Phoenix Coyotes deal, the interest rates the city obtains make a big difference in how much debt Glendale would take on.

Team buyer Matthew Hulsizer says investors are demanding high interest rates due to nervousness among bond buyers about a potential Goldwater Institute lawsuit over whether the city is illegally subsidizing a private business. Glendale maintains it's on firm legal ground.

This is exactly the line the paper took in its Sunday editorial.  Now they are giving an interested party the ability repeat it in a supposed news article.  The author deliberately puts Goldwater on the spot and in the center of blame

Late Monday, Hulsizer questioned whether the Goldwater Institute wanted the team to stay.

"If they do indeed want the team to stay, then wouldn't they want the city to be able to complete financing at the best possible rate?" he said in a statement to The Arizona Republic.

He asked, if the Coyotes left Glendale, what Goldwater's plan was for the city to pay off its construction debt on the arena and for businesses nearby to survive without hockey customers. The city spent $180 million to open the arena in 2003.

Why in heaven's name is it Goldwater's problem that an earlier bond issue they actively opposed as a bad idea might turn out to, you know, have been a bad idea?  The article goes on and on this way, quoting other people of the same point of view. Goldwater doesn't get a quote until paragraph 24 or so, where Darcey Olson who heads the Institute says

She said Glendale has "unlimited options" to avoid a Goldwater lawsuit. "For instance, Hulsizer could get a private loan to buy this team like most businesses do," she said. "They finance their investments not on the backs of taxpayers but take the risk privately where it belongs."

The evidence of the article that Goldwater is shaking the very pillars of Wall Street is that the city expected one set of interest rates, but the market was giving them higher rates

Glendale officials in December hoped for a roughly 6 percent interest rate.

Todd Curtis, portfolio manager for Aquila Tax-Free Trust of Arizona, said he expected to see a 5 to 5.5 percent interest rate after Moody's Investors Service in mid-February gave the Coyotes bond sale a fairly high rating.

More than a week ago, Curtis was hearing of proposed rates around 7 percent.

Of course, they present no evidence as to why this might be. We are left to assume it is because Goldwater is somehow creating unfair bad vibes. Except then we get this oh-by-the-way near the end of the article:

Moody's and Standard & Poor's raised worries in February about the city's debt levels. As a result, Moody's downgraded several city bond ratings and Standard put the city on a watch list, though the city's ratings remain high.

Also, Glendale pledged to cover the Coyotes bonds with sales taxes, a revenue stream hurt during the recession. The city in its preliminary bond statement points out its sales-tax base is strong.

OK, lets check the reporter's decision-making here.  We have five facts

• The major bond ratings agencies recently put the city on a credit watch list
• Sales tax revenues that pay for the bonds are way down
• 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
• A local think tank has raised legal questions about the deal -- legal questions that turned out to be correct in a parallel case.

So our lede is that it is all about the fifth one, just because millionaire Matthew Hulsizer, who is set to feed at the public trough to the tune of $200 million, says its so?

Ask yourself, what is the first section of the paper many folks look at?  The sports page?  An extra professional sports team adds a hard to quantify but definite amount to the paper's bottom line.  The AZ Republic clearly recognizes this and is all-in for any taxpayer subsidy that is required to keep this important part of their business running.

If you had told me last week that half the media would be blaming Sarah Palin for the actions of a leftish nutcase, or that Keith Olberman would be accusing, well, anybody, of being too immoderate in their rhetoric, I would have said you were crazy.  Seldom have I found the tone and tenor of the media coverage of any event to be less satisfactory than with the Giffords shooting this weekend.  So of course, I have joined the fray with my own column on Forbes.

We libertarians cringe when presented with a “national tragedy” like the shooting of Gabriella Giffords.  Not because we are somehow more or less sensitive to vilence and loss of life, but because we begin bracing for the immediate, badly thought-out expansion of state power that nearly always follows any such tragedy, whether it be 9/11 or Columbine or Oklahoma City or even Pearl Harbor.  Those looking to expand the power of the state, and of state officials, make their greatest progress in the emotional aftermath of a such a tragedy.  These tragedies are the political equivilent of the power play in ice hockey, when defenders of liberty find themselves temporarily shorthanded, and those wishing to expand state power rush to take advantage.

Here is one example from later in the piece:

After 9/11, Republicans argued that it was time to put away political differences to rally around the President in a time of war.  They implied that criticizing the President in such a time was somehow unpatriotic and counter-productive.   Was this true?  I thought the opposite — that the momentous decisions to be made post-9/11 demanded more rather than less debate.  America would eventually wake up from this celebration of unity with a hangover in the form of the TSA, the Patriot Act, detention at Guantanamo Bay, and wars in Iraq and Afghanistan.

The fact is that politicians, particularly those in power, find every excuse to ask Americans to “moderate their public discourse,” in large part because this request translates in the real world to “reduce the criticisms of those in power.”    So it should not be surprising that many of those who represent our current ruling party blamed the Giffords shooting on the hate-filled rhetoric of the opposition party, even before we knew the name of the killer,.

From a larger historical perspective, I would argue that current political discourse is really rather tame.   Even the wackiest cable opinion show pales in comparison to the fire-breathing political attacks that could be found in nearly any 19th century newspaper.  In the 1960’s, political discourse became so heated that it spilled out into the streets in the form of urban riots.  In fact, what we should fear far more than our rhetoric is the current threats by politicians like Jim Clyburn of South Carolina to use this tragedy as an excuse to put new restrictions on speech.  A number of high-profile comentators have spent more time blaming this shooting on Sarah Palin than on the shooter himself.   Given the complete lack of evidence for any such connection, such efforts can only be viewed as an effort by those on power to silence a prominent opposition leader.