Pawtucket soccer developers announce plans to seek Trump tax breaks for stadiums in Baltimore, Cleveland, and more

The story of the $45 million Pawtucket minor-league soccer stadium seeking upwards of $70 million in tax breaks and the story that the United Soccer League is seeking to leverage Trump’s Opportunity Zone tax-break districts for more stadiums just had a baby, and it is this:

Fortuitous Partners Brett Johnson and Berke Bakay announced that they are looking to do developments in Baltimore, Cleveland, and other cities around the country…

Johnson during the interview said that Fortuitous Partners is also looking at Baltimore, MD; Cleveland, OH; and other cities for their opportunity zone driven sports complex model.

Opportunity zones, as I’ve written before, sound simple but get fiendishly complex in their details. On the surface, they’re just like other tax-subsidized districts like “enterprise zones” and “empowerment zones,” where developers get a tax break for building in “disadvantaged” areas, which is theoretically supposed to help the disadvantaged residents. (A report by Good Jobs First notes that the results of those earlier subsidy zones have been “not encouraging,” with little in the way of new economic activity and even less in the way of new jobs for locals.)

But the tax break that an opportunity zone earns a developer is a weird one: You get exempted from paying capital gains tax, but only on businesses that are owned by a “qualified opportunity fund,” meaning developers (or soccer teams) would likely need to set up a new shell corporation to own whatever it was they wanted to dodge taxes on. How that works, and what the IRS will let investors get away with, is still being figured out — the Trump administration implemented opportunity zones without really figuring out first how they would work, which is kind of turning into its brand — but clearly these Fortuitous folks think they know how to do it, or at least are trying to get dibs on lots of opportunity zone land for soccer stadiums and then will figure out the details later. Baltimore and Cleveland journalists, you might want to get on this, if there are any of you left.

Yes, the Trump administration just proposed counting stadium loans as aid to the poor, but it’s slightly more complicated than that

So this is happening:

For decades, the U.S. has required banks to steer a portion of their money to people in poor neighborhoods. Now, under proposed rule changes, banks may finance upgrades to sports stadiums, call it helping the poor — and potentially even get a generous tax break.

That scenario might seem oddly specific, but it’s what two regulators appointed by President Donald Trump said last week they may allow as they undertake the most significant rewrite of the Community Reinvestment Act in a quarter-century.

That report from Bloomberg News ran yesterday under the headline “Financing for Sports Stadiums Could Count as Helping the Poor,” which is technically correct, but also not a complete picture of the two different federal programs — the Carter-era Community Reinvestment Act and the Trump-era Opportunity Zones — that are colliding to create this loophole that could potentially provide government-sanctioned aid (but not precisely subsidies) to sports venues.

The CRA first: Passed in 1977, it set out to eliminate redlining — banks refusing to loan to low-income residents and people of color — by requiring that they offer loans to all sectors of the communities where they do business, or risk losing their federal deposit insurance. How exactly that’s defined has been a matter of debate ever since, and the results haven’t always been outstanding, but still the CRA has been a useful bit of leverage to wheedle banks with to get them to loan in low-income communities.

Opportunity Zones, meanwhile, are a 2017 concoction that tries to encourage private investment in low-income areas by designating 8,764 zones nationwide as zones where investments can grow free of capital gains tax. What exactly determines an investment in a zone is still somewhat up in the air — does it have to be a new business, or can you just transfer an existing one into a Qualified Opportunity Fund, or what? — but the bigger issue has been where the zones were drawn, which includes 52 major-league sports stadiums and arenas and at least one superyacht marina. One early study found that more than 40% of all zones were in either low-poverty or already-gentrifying neighborhoods.

What the Trump administration is now proposing to do, following an 18-month planning process, is to use the Opportunity Zone map to determine where banks can fulfill their low-income lending responsibilities under the CRA. Stadiums in OZs are just one of the potential beneficiaries — and, it’s worth noting, must also be in a low- or moderate-income census tract (though that’s probably not a high hurdle for most) — but raised a bunch of eyebrows from people who are wondering if banks will start listing loans for stadium scoreboards as a way they’re meeting their low-income lending requirements. (One of the designers of the Opportunity Zone legislation told Bloomberg he found the mention of sports stadiums “weird.”)

What we have, then, is a pair of ill-defined “poverty-fighting” measures that when put together provide some more incentive for banks to lend to some sports projects, maybe. That could result in lower interest rates for sports team owners (because banks will be okay with earning less interest if it helps them check the CRA box), and could end up doing so at the expense of actual projects to help low-income communities, if we assume that that’s what the CRA is actually doing now. (Brent Adams of the Woodstock Institute in Chicago, where the CRA was first initiated in the 1970s, told Next City, “The changes are dramatic, and correspondingly they could produce a dramatic shift in the flow of capital, and for some entities that could be devastating.”)

Ultimately, the problem here is the Opportunity Zones, which were chosen by a politically dodgy process and are an untested method to spur private investment for public good, which is usually a recipe for investors to discover loopholes, which is exactly what appears to be happening; add in using these haphazardly selected zones as a means of judging banks’ willingness not to discriminate against the poor and it’s just a mess. Repealing the Opportunity Zones, or at least changing the way their chosen and operate, would seem like a priority for Congress, that is if Congress were getting much of anything these days.

Friday roundup: Team owners rework tax bills and leases, Twins CEO claims team is winning (?) thanks to new stadium, and other privileges of the very rich

Tons more stadium and arena news to get to this week, so let’s dive right in without preamble: