A state board on Wednesday unanimously gave the go-ahead for a new Red Wings hockey arena in downtown Detroit to be paid for in part with $284 million US in tax dollars even as the broke city works through bankruptcy proceedings.

Michigan Gov. Rick Snyder and others defended against criticism that the $650 million project should be financed entirely with private money because the city currently can't provide basic services and retirees are facing cuts in their pensions. The 18,000-seat arena is designed to be a catalyst for more development and to link downtown and midtown, turning a blighted area into a business, residential and entertainment district.

"This is part of investing in Detroit's future," said Snyder, a Republican who blessed a state-appointed emergency manager's request to take the city into bankruptcy last week. "That's the message we need to get across. ... As we stabilize the city government's finances, as we address those issues and improve services, Detroit moves from a place where people might have had a negative impression — although there are great things already going on — to being a place that will be recognized across the world as a place of great value and a place to invest."

The Michigan Strategic Fund Board approved the Detroit Downtown Development Authority's request to use economic development taxes for the project. The board also took a preliminary step toward issuing $450 million US in bonds to build the arena, to be paid off in no more than 30 years by the Red Wings' owner and the city.

Red Wings owner Mike Ilitch has long wanted a replacement for the 32-year-old Joe Louis Arena located a few miles away. The new complex would be close to the Lions' Ford Field and Tigers' Comerica Park near Interstate 75 and Woodward Avenue.

Under the plan, the authority would own the arena and event centre complex. The Red Wings' owner would have exclusive rights to use, manage and operate it, and hold naming rights.

No new taxes or funds from the cash-strapped city would be needed.

The state Legislature last year approved a bill to help finance the project by allowing the use of tax dollars collected by the downtown development authority.

Senate Democratic leader Gretchen Whitmer, an East Lansing Democrat, opposed the measure as a drain on funding for Detroit's public schools.

"Now that the city's actually in bankruptcy those concerns are even more justified at this point," spokesman Bob McCann said Wednesday. "We're all supportive of new development in Detroit. But it's difficult to tell the residents of the city that this is more important than public safety or street lights."

Snyder argued the project will increase the city's tax base in the long run and create jobs.

Fifty-six per cent of the overall project cost would be private and 44 per cent public, though about 60 per cent of the actual $450 million US arena cost would come from tax revenues. Another $200 million US — all but $23 million of it private — is planned for projects nearby that could include rehabbing existing buildings and vacant lots for a hotel, stores, parking deck and residential units.

Olympia Development, owned by Ilitch and his wife, said the funding split for comparable major sports complexes in other cities in the past decade has averaged 75 per cent public and 25 per cent private.

Construction of the arena is anticipated to be done by 2017. It's also expected to host other entertainment events. No design has been made public.

Representatives for Olympia Development said the project will create 400 more permanent jobs and 5,500 construction jobs. At least half the construction jobs must go to city residents.

Other approvals are needed by local agencies.

"There is some additional due diligence that has to happen as a result of the Detroit bankruptcy," said Michael Finney, president and CEO of the Michigan Economic Development Corp. "But we have not identified anything that would signal pulling back from the project. We are motivated to continue moving forward and we trust that the project will be successful."