L.A. seeks to use $22.5m in anti-poverty funds to help build MLS stadium (UPDATED)

When the Los Angeles city council approved a $250 million stadium plan for the Los Angeles F.C. MLS expansion team in May, I wrote that it looked like it would be entirely paid for with private money, “unless there’s some other shoe yet to drop.” And you know, sometimes I really hate being right:

Los Angeles City Hall is seeking to give a loan of up to $22.5 million to the developers of a new soccer stadium near downtown Los Angeles.

A motion submitted this week by City Councilman Curren Price asks for city approval for a U.S. Department of Housing and Urban Development (HUD) loan for the backers of the Los Angeles Football Stadium.

Now, the HUD loan isn’t for the stadium per se — it’s for the “ancillary” construction, meaning a sports museum, conference rooms, and retail, i.e., all the parts of a stadium complex that don’t specifically involve watching the game. The excuse for using a federal housing loan program to build this is that it’s “economic revitalization,” which is the usual argument for this sort of thing.

If the government were just lending the money and the team repaying it, that wouldn’t be such a big deal. But HUD Section 108 loans are repaid by a local government’s federal Community Redevelopment Block Grant funding — meaning Los Angeles is considering taking $22.5 million in anti-poverty funds and giving it to the developer of a soccer stadium, because economic development.

MynewsLA reports that the city council voted on Friday to ask HUD for the loan, so presumably this is now up to the Obama administration (or its successor) to approve or deny it. I’m not sure what discretion HUD has to reject uses of its loans for really off-label purposes, but hopefully we’re going to find out.

UPDATE: A commenter who works in finance points out some fine print in the Section 108 program: The city’s CRBG funds are only used as security on the loan, but it’s still supposed to be paid off by the private developer. This is much better for the public than a straight subsidy, obviously — LAFC’s owners would be getting the benefit of a cheap loan rate, and there’s some risk to taxpayers if they default on the loan, but it’s not just handing over $22.5 million. You can still make a good case that HUD should be looking at this project with lots of skepticism — if building a soccer stadium is an anti-poverty program, then building pretty much anything is — but at least it’s less of a cash grab it appeared at first.

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13 comments on “L.A. seeks to use $22.5m in anti-poverty funds to help build MLS stadium (UPDATED)

  1. What I do not understand is why more opposition groups do not organize legal suits claiming malfeasance of office, misappropriation of funds, racketeering, etc.

    1. In Los Angeles, the opposition groups and the officials handing out the Corporate Welfare belong to the same political party.

  2. At one time, a player on the end of an MLS bench was probably eligible for food stamps if he had a couple of kids.

    But the solution to that is not Corporate Welfare.

  3. Is there actual support for a second MLS team in L.A.? I mean the L.A. Galaxy are already a solid team.

  4. How many people are poor in Los Angeles? Half of them. This would have only been like two dollar apiece.

    A pittance, compared to the massive influx the local economy is going to receive from the second-most popular MLS team in the city.

    “You’ll thank us later.”

  5. One minor correction – HUD 108 is a loan guarantee program only – the developer would still be responsible for finding private financing for the $22.5 million from a private lender; the City offers its future CDBG funding as a guarantee in case the developer fails to pay back the loan to the lender. I don’t know what the ultimate failure rate is in LA or elsewhere but I bet it is very low. Ultimately in this case the only likely “subsidy” is whatever interest is saved by the developer on the private loan due to the city’s guarantee. I don’t know where in LA the stadium is and what exactly the 108 funds would be used for, but this sounds like a fairly typical use for 108 funds – to create jobs and economic activity in underserved communities.

    One can certainly debate the opportunity cost of allocating 108 loan program capacity to this project vs. something else that could meet the same eligibility, but it really isn’t a public handout in the way that other stadium funding schemes can be.

    1. Are you 100% sure about that, Tim? The HUD site says:

      “The Section 108 Loan Guarantee Program (Section 108) provides communities with a source of financing for economic development, housing rehabilitation, public facilities, and other physical development projects, including improvements to increase their resilience against natural disasters. The funds can be used by a designated public entity to undertake eligible projects, or, alternatively, can be loaned to a third party developer to undertake the projects.”

      I agree with you that this is much less of a subsidy if the CDBG funds are just a backup revenue stream rather than a direct payment. So I hope you’re right — I just haven’t been able to find it in the HUD docs.

      1. Yeah, I’m sure – this is a better explanation: http://business.usa.gov/program/section-108-loan-guarantee-program; The City or other government entity acts as a pass through for the loan and as the ultimate guarantor. I’ve done several 108 deals over the years.

  6. You being “right” because you included a qualifier like ‘unless X happens’ is like me saying I’m going to win the lottery unless I pick the wrong numbers and consider that a correct statement when I don’t hit the jackpot. Besides that self congratulatory bit in there, good article and doesn’t surprise me they’re trying to pull a stunt like this.

    1. I didn’t mean that as self-back-patting, sorry if it came off that way. More “I hate when humanity lives down to my lack of faith in it.”

      Anyway, if the bit Tim mentions above about the public money just being a backstop is true, then there’s still hope. For those of us with any hope to spare, that is.

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