Pawtucket proposes $70m-plus in tax kickbacks for $45m USL stadium

There’s a winner in the competition to build on the riverfront site where the Pawtucket Red Sox turned up their noses at building a new stadium, and it’s … the crazy soccer stadium complex with the mountains in the background! (Helpfully blurred out in the latest rendering.) And according to the Providence Journal, while the USL stadium itself would only cost $45 million, the bigger project would stand to make a lot more than that in tax kickbacks:

The stadium would be the first piece of a larger, multi-part, mixed-use project Fortuitous is calling “Tidewater Landing,” that would take advantage of federal “Opportunity Zone” tax breaks…

The plan hinges on approximately $70 million to $90 million in public support, most of it from the state through a “tax increment financing” plan that allows the developer to use a portion of new tax revenue generated around the development to pay for construction. That total includes infrastructure like the pedestrian bridge, public parks and river walks on both banks of the Seekonk.

The bigger project includes 200 apartments, 100,000 square feet of shops and restaurants, a 200-room hotel with an “indoor sports event center,” and 200,000 square feet of office space, though it’s not clear whether all of that needs to be built in order for the tax subsidies to kick in. Also not clear: Where all of that $70-90 million would come from — the Journal says only $10 million would come from the city, so would some of it be state sales tax kickbacks? (Or maybe they mean that it would be $10 million in cash and the rest in tax increment financing, which somehow isn’t “city money” because Casino Night.) Also, why wouldn’t it require state legislative approval even if this would be a state-designated tax redirection zone. So many questions that the Journal could have answered, or at least asked!

All in all, this Pawtucket plan exemplifies a whole bunch of trends in the modern stadium game: throwing money at pro soccer because there’s a seemingly infinite number of available expansion franchises there (both in MLS and in the lower-level USL), providing public money via TIFs because it’s easier to pretend this is new money generated by the project even when it’s not, and the “kitchen sink” approach where you throw as many unrelated items into a development project as possible in order the muddy the financial waters to where everyone just throws up their hands at figuring out who’s being subsidized for what. Plus Opportunity Zones, the Trump-created tax break that is so confusing even tax experts aren’t sure how exactly it will end up working, and the ever-more-popular model of approving sports subsidies without legislative oversight. It’s the perfect crime. Er, downtown development project. I surely don’t know why I typed “crime.”

Rendering of Pawtucket soccer stadium ends up revealing USL scheme to exploit Trump opportunity zones for federal tax breaks

Journalism takes all forms in these days of vanishing budgets and vanishing newsrooms, and sometimes it’s somebody spotting something on a website and going whuh?

That is, as the Valley Breeze notes, an image of a new soccer stadium and accompanying development on the Seekonk River in downtown Pawtucket. True, as the paper notes, this version of Pawtucket is “missing some downtown features and shows mountains in the background,” but clearly somebody at least went through the trouble of Photoshopping a soccer stadium onto some alternate-reality Pawtucket, which has to mean something.

And the Valley Breeze reporting staff (actually Valley Breeze managing editor Ethan Shorey, who in the absence of a masthead I’m guessing is the entire Valley Breeze reporting staff) went to the trouble of calling developers Fortuitous Partners and asking about the picture, and got confirmation that they’re “pursuing a $400 million project” in Pawtucket. Fortuitous — whose founder Brett Johnson also owns the Phoenix Rising F.C. USL team — was previously reported to be interested in building a USL soccer stadium on the site previously rejected by the Pawtucket Red Sox for a new baseball stadium. And Johnson had more to say about the project:

He described United Soccer as the fastest-growing sports league in the world, saying the company is exploring more than 60 markets that all have the potential to bring soccer, and leveraging the opportunity zones in every case.

Now that’s some news. Not the “exploring more than 60 markets” part — that doesn’t mean we’ll actually get 60 USL teams, though we’re already getting close. No, the interesting bit is that USL apparently plans to pick its stadium sites by locating teams in “opportunity zones,” the new Trump-created districts that allow developers to defer or evade entirely paying capital gains taxes on projected in “undercapitalized” areas.

As Billionaire Boondoggle author Pat Garofalo has reported, 52 existing major-league stadiums and arenas are already in opportunity zones. But because the main benefit to an opportunity zone is placing assets in an “opportunity fund” and then letting them gain in value tax-free — the language is hideously complex and even the forms are incredibly confusing, but that’s the best I’ve been able to figure out based on reading up on OZs and talking to tax experts — it seems like it would hold special appeal to investors looking to create a whole new entity, say a USL team, and then holding it within an opportunity fund so that the inevitable gains when USL teams turn out to be worth hundreds of millions of dollars despite everybody and their sister having one would be tax-free.

If you’re hoping for a dollar figure or even a guesstimate on how much this would cost the federal treasury, we are way too early in the game for that, sorry. But it is an indicator of how obscure changes in tax policy can shift an entire industry’s approach to its business model; sort of the way the 1986 Tax Reform Act’s okaying of using tax-exempt bonds for sports facilities helped spark the torrent of new publicly funded sports venues that followed. Capitalist free markets obey rules, yes, but those rules are set down by government policy, and tweaking one or two can make a huge difference in who gets to earn money how — which is no doubt why billionaires stayed up all night phoning Congressional legislators to get OZs passed into law.