Breaking Down the Arena Deal Gary Bettman Is Pressuring Calgary to Accept

Jonathan Willis@jonathanwillisNHL National ColumnistJanuary 13, 2016

NEW YORK, NY - OCTOBER 08:  National Hockey League Commissioner Gary Bettman visits the floor of the New York Stock Exchange after ringing the opening bell on October 8, 2015 in New York City.  (Photo by Andrew Burton/Getty Images)
Andrew Burton/Getty Images

NHL Commissioner Gary Bettman was in Calgary, Alberta, this week, and he was there to do what he's done in so many other markets: pressure local government to accept an arena deal that includes massive amounts of public money.

Calgary Mayor Naheed Nenshi
Calgary Mayor Naheed NenshiAFP/Getty Images

In a chamber of commerce event covered by TSN, Bettman said he was "having trouble understanding" why there hadn't been more progress on the project, dubbed CalgaryNEXT. He said the cost was never going to be lower, that it was necessary and put the onus for progress squarely on Mayor Naheed Nenshi.    

"I believe that if this project is going to happen, the mayor needs to embrace it, the city needs to embrace it," Bettman said. "If he's not prepared to embrace it, then people will have to deal with that."

The mayor, who skipped a meeting with Bettman on Tuesday, may not be prepared to embrace the project, and when we look at the specific financing, it's easy to understand why. The project's official website breaks down funding into four categories.

Flames CEO Ken King
Flames CEO Ken KingBruce Bennett/Getty Images

The biggest share, $250 million, would come from a user fee. Calgary Flames CEO Ken King claimed this was "not public money" in a presentation currently available on CTV's website. However, while that money would be paid off through a ticket surcharge over time, the CalgaryNEXT website is silent as to which party will stake the initial share to be paid off over time.

In many cases, the initial money is borrowed by the government rather than the owner because governments generally pay less interest than private parties. Speaking about another arena deal in Seattle in 2012, King County official Dwight Dively explained to journalist Art Thiel that governments can borrow at rates "four to five percent less than private investors."

When asked, King said there were "lots of conceivable ways" to come up with the $250 million up front but declined to specify what those were. If, as seems likely, the city of Calgary borrows that money and then repays it over time through a surcharge on tickets, it's difficult to describe that as purely private money.

An additional $240 million would come from a Community Revitalization Levy, which is a form of Tax Increment Financing (TIF). This is a targeted tax on a geographic area that is expected to be stimulated by the CalgaryNEXT project. TIF has been studied at length by economists, including by Richard Dye and David Merriman in 1999. Dye and Merriman studied TIF in Illinois and found that cities that adopted it "grow more slowly than those that do not" and that they only stimulate growth in a designated area "at the expense of the larger town."

Last January, a policy brief from the Ball State University Center for Business and Economic Research found other negative effects when it considered the impact of TIF in Indiana. Employment and income were reduced, and effective tax rates were increased as a result of such spending. The brief went so far as to say that "TIF is not an effective economic development tool but is instead a budget management tool for local governments."

Under the current proposal, $200 million more would be contributed directly by the city, and that would be matched by $200 million from the Calgary Sports and Entertainment Corporation (CSEC, the owners). That last figure is the only amount being explicitly offered by CSEC, which in the view of Mayor Nenshi leaves the remaining $690 million on the back of the city and its taxpayers:

It's perhaps an overstatement to describe the user fee as 100 percent public money, though there's obviously a significant public component to it. But there's also an additional expense not included in Nenshi's $690 million figure.

Not mentioned in the funding model is the cost of cleaning up the land the arena is to be built on, which is currently contaminated thanks to the creosote plant that previously existed there. The cost of the cleanup is unknown at this point, but Annalise Klingbeil of the Calgary Herald reported in August it has been estimated at "between $50 million and $300 million."

Although the proposed funding model doesn't mention those costs, the Frequently Asked Questions section of the CalgaryNEXT website hints rather strongly at who CSEC hopes will pay for decontamination:

CalgaryNEXT will be a catalyst to find collaborative solutions from all levels of government. The contamination clean-up is a complex challenge. The hope is to engage all levels of government in a discussion to share the responsibility. It needs to take place with or without this project for the land to have more uses than it presently does.

That sentiment expresses a desire to get the ball rolling on the cleanup and a wish for "all levels of government" to find solutions and share responsibility. It doesn't express an eagerness to spend so much as a penny of private money on such an endeavor.  

It's no surprise both CSEC and Bettman are eager to get such a deal with the city. King went so far as to say "nope" when asked if the Flames had considered a plan B. Under the current proposal, government would provide the land and contribute $440 million outright, and it could also find itself on the hook for the $250 million loan to be repaid through ticket surcharges as well as a potentially massive decontamination bill.

The city of Calgary will have to decide whether spending so much money is in the best interest of the city. There's no question that it is in the best interest of the Flames.

Jonathan Willis covers the NHL for Bleacher Report. Follow him on Twitter for more of his work.

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