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Lawsuit ‘option on the table’

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Darcy Olsen CEO, The Goldwater Institute


Posted: Wednesday, March 9, 2011 6:30 pm

Addressing reports the city is planning to file a lawsuit against the Goldwater Institute, Glendale Deputy City Manager for Communications Julie Frisoni said, "The city continues to try and work with the Goldwater Institute. Just as recently as last week, the city sent letters from the mayor to board members and the Institute, stating the situation as it exists cannot continue without a resolution."

Frisoni said all outreach by the mayor was rebuffed by the GI, who said, "Thanks, but no thanks."

"That's why we came out publicly," Frisoni said, referring to the press conference called last week by Mayor Elaine Scruggs at Westgate. "We've done all we can. We've attempted to do a lot of outreach and offer some opportunity to work with us and work through this. It has created serious issues with moving this forward. The council has given staff direction to look at any and all options to move this deal forward and solidify the Coyotes' future in Glendale. That is where we are today.

"We have not announced publicly we are moving forward with a lawsuit, but that is an option on the table."

The clock is ticking, Frisoni said, referring to the agreement the city reached "almost three months ago" with Chicago businessman Matthew Hulsizer. The deal requires Glendale to sell $100 million in bonds.

Frisoni said that at the same time, the GI received all the deal points.

Frisoni said, "Yet, here we sit three months later, not very much further along, and now we have an outside entity has gone and used the public airwaves to criticize the deal, has refused to meet with the city to move this deal forward, and agove and beyond all of this, has taken the unprecedented action of contacting the bonding institutions in an attempt to continue to hinder this deal.

"So, the very taxpayers they purport to support and stand up for will be seriously hurt if a half-billion dollar enterprise walked out of the City of Glendale. So, as you know, we had hoped to have this deal done by now. And there isn't just an open window. So, we really need to move forward and get this resolved.

"There's no deadline; there's nothing like that at the table. It's just how much longer can this go on realistically?"

So, what happens if the bonds are not sold?

"It seriously hampers the ability for this deal to get done," Frisoni said. "That's a major component of this deal. If that doesn't happen, it seriously hampers the city's ability to get this deal done. It means the ownership transitioning not happening and the team being in a difficult situation we don't want to think about.

"And, now, we have an outside entity with no ties to the city seriously hampering the ability of a city and an owner to get that deal done."

On average, the facility, the cost of running, is somewhere between $15 million and $20 million a year, Frisoni said, "and that's all the cost associated with running an arena of this stature. That price tag exists with or without a main tenant. To lose a main tenant to pay those costs would be very difficult on a city."

Frisoni had another point she felt was important to mention.

"The city obviously has spent years crafting this deal," she said. "This saga has gone on almost two years. Longer than that. May 2009, Mr. (Jerry) Moyes put the team in bankruptcy. The deal is in the best interests of the city, and allows the city to maintain the main tenant at the arena."

Frisoni said the city has had four separate legal analyses of the city's deal, and all four have shown the deal meets all of the requirements of the Arizona gift clause.

"So, to have one outside entity to act in this manner and disrupt this deal and cost half a billion dollars at the end of the day, the city cannot stand by and let that happen," Frisoni said. "For three months, we provided documents and offered to sit down with them. When the entity across the table refuses to sit down, that leaves the city with no other option."

Frisoni said the city plans to protect its investment in the arena, the Coyotes and Westgate, and its investment in the city.

Goldwater Institute CEO Darcy Olsen issued a statement early Tuesday, wherein she said if the city files a lawsuit against the institute, "it will be frivolous and unsuccessful."

Olsen said, "Let me be clear: The Goldwater Institute will not stop this investigation.

"The Goldwater Institute files lawsuits when public officials abuse the law and all other options are exhausted. We also file only when we have all the relevant facts to properly assess a situation. Because Glendale continues withholding public documents, in spite of a court order to release this information to the public, our analysis of the deal remains incomplete.

"The City of Glendale has been under a court order to provide the Institute with all records and documents pertaining to the Coyotes sale since July 2009. On Thursday March 3 during a press conference, Glendale Mayor Elaine Scruggs said, ‘Glendale has provided the Goldwater Institute with everything they have asked for.' The statement was clearly misleading. During the following 36 hours, the city proceeded to release an additional 750 pages of documents to the Goldwater Institute.

"Glendale has been deliberately recalcitrant in providing public records. In one e-mail City Attorney Craig Tindall specifically directed his deputy attorney to ‘play with' or ‘ignore' the Goldwater Institute's request seeking to view public records subject to the court order.

"Because so much of this deal has been conducted behind closed doors and out of public view, we believe any future meetings or phone conferences should be conducted openly and transparently. We believe the media should be able to report first hand on the interactions between interested parties.

The Gift Clause of the Arizona Constitution prohibits gifts by subsidy, loan or otherwise to private individuals or corporations. Under the current structure of this deal, Glendale will send $100 million to Mr. Hulsizer to assist him in buying the team and will pay him another $97 million to manage the arena for the next five-and-a-half years. Giving public funds to the buyer of a sports franchise raises red flags under the Gift Clause.

"The $100 million payment to Mr. Hulsizer is primarily in return for the sale of parking lot revenues by the team to the city. However, the City may already own a significant portion of those rights. If so, the city essentially is "selling" parking revenue rights to itself, which would be an obvious sham and a clear violation of the Gift Clause.

"The city insists the team owns the parking rights. Unfortunately, it has not yet been able to demonstrate that it does.

"Even if the team owns some or all of the parking rights, the value must be roughly proportionate to the compensation paid. The city has given the public the impression that it would use only parking revenues to repay the $100 million in bonds used to finance the payment to Mr. Hulsizer. However, when the draft bond statement was released, it was revealed that the city is pledging excise and sales tax revenues if necessary to repay the bonds. That is extremely significant, because it means that if the team fails again -- at any point over the next 30 years -- or if parking revenues are insufficient to repay the bonds, Glendale taxpayers will be on the hook to repay the bonds through their tax dollars. The financial consequences could be catastrophic.

"There is an easy solution to this problem. If Glendale and Mr. Hulsizer believe that parking revenues will be sufficient to repay the bonds, then it is Mr. Hulsizer, not the city, who should guarantee any revenue shortfall. That would prevent serious harm to the taxpayers and place the financial responsibility where it should be: with the owner of the team, rather than on taxpayers' shoulders. Taxpayers should not be asked to take a risk that the prospective owner is unwilling to take with his own money.

"Glendale asserts that because the Goldwater Institute has expressed concerns about the deal, it has caused the bonds' interest rates to rise ... Prospective bond purchasers must not be kept in the dark about potential legal risks, which would be akin to the seller of a home failing to disclose serious construction defects.

"We are not anxious to sue over this deal or any deal; to the contrary. But we are anxious for government bodies to follow the law. If this behavior can be subject to a retaliatory lawsuit by a legion of government attorneys, then journalists, bloggers, and regular citizens across the state are all at risk.

"The Goldwater Institute is doing what the City of Glendale should be doing on its own: working to protect taxpayers. There should be no need for an independent organization to take the city to court to ensure public documents are made public; the city should make public records public. There should be no need for the Goldwater Institute to file a lawsuit to block this deal because the city should not craft deals that violate the Constitution. Until the city does its job, the Goldwater Institute will be there, asking questions, exposing the truth, and filing lawsuits if and when such action becomes necessary. "

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