By Joe Setyon
December 29, 2021
Who could have guessed that forcing taxpayers to fund a professional hockey team in the desert wouldn’t be a good investment?
A decade ago, the City of Glendale, then home to the Arizona Coyotes, didn’t want to listen. Instead, officials were chomping at the bit to use taxpayer funds to convince the team’s next owner not to leave town. Now, the city is finally seeing the folly of its years-long investment in the team, providing a cautionary tale to governments seeking to subsidize private companies.
These days, the City of Glendale wants you to know that it cares a great deal about protecting taxpayers’ interests. Officials are flexing some muscle, pledging that this season will be the hockey team’s last playing at the city-owned Gila River Arena.
After all, the Coyotes have had a hard time drawing fans, paying their bills on time, turning a profit, or adding significant economic value to the area where they play. By one estimate, sales tax revenue generated by Coyote crowds at the city-owned arena and the surrounding entertainment district is only about $12,000 per game, The New York Times reported. And under the Coyotes’ current lease, the team pays just $500,000 a year in rent on the arena (a 2016 estimate said most teams pay in the $3 million-to-$4 million range to compete in publicly-owned arenas).
Apparently, the City of Glendale feels it’s better off renting out the arena, which cost taxpayers nearly $200 million to build, for concerts and other events. This is the right decision for a simple reason: Businesses should succeed or fail on their own merit, not the taxpayers’ dime. They ought to convince private investors to bear the risk that comes with operating any business, including owning a hockey team in the desert.
The city should have taken this approach in 2011. But when investors were apparently unwilling to commit their resources to a risky venture, city officials clamored for Glendale to fork over nearly $200 million to a prospective Coyotes buyer to keep the team in Glendale.
Goldwater exposed that deal for what it was— bad policy and likely an illegal subsidy that violated the “gift clause” in the Arizona Constitution, which prohibits the government from subsidizing private entities without the public receiving adequate value in return.
At the time, Glendale city officials claimed the Institute’s stance would hurt taxpayers. But the Gift Clause was adopted precisely to protect taxpayers against government involvement with private enterprise. Arizonans knew more than a century ago that when the government tries to pick economic winners and losers, it generally prioritizes political influence over products that consumers actually want. And while private businesses are incentivized to make good investments when they use their own money—after all, they’ll have to reap the rewards and the consequences—subsidizing companies with public funds means taxpayers take on the risk.
Goldwater’s opposed using taxpayer resources to subsidize the Coyotes over a decade ago, and its opposition improved the 2011 deal. But Glendale ultimately ended up forcing taxpayers to foot the bill to the tune of tens of millions of dollars to prop up the Coyotes in the following years. And now, at long last, the city appears to have realized the errors of its ways.
Of course, it’s rare for public subsidies of private companies to actually generate the promised economic benefit. But other governments still haven’t learned their lesson.
In Peoria, for instance, city officials gave away nearly $2.6 million to two private businesses, who operated in Peoria for their own benefit and profit – but promised nothing in return to the public that was paying the bill. Goldwater took the city to court on behalf of taxpayers, and the Arizona Supreme Court unanimously ruled in the Institute’s favor in February, reinforcing the state Constitution’s edict: Taxpayer dollars must be spent for the direct benefit of the public.
Cities will no doubt continue trying to dole out taxpayers’ money to private companies in hopes of achieving some undefined economic benefit. But they should take note of what happened in Glendale and pause: After years of forcing taxpayers to prop up the team, the city is showing the Coyotes the door. Better late than never. And better still to learn from the past so that it doesn’t repeats itself, just as the framers of Arizona’s Constitution forewarned.
Joe Setyon is a Digital Communications Associate at the Goldwater Institute.