Biden stimulus bars state tax cuts through 2024, but there are still plenty of ways to funnel public cash to stadiums

When Congress passed the American Rescue Plan Act — aka the stimulus bill — last week, it included a last-minute addition by the Biden administration that could significantly impact the world of tax subsidies: In exchange for $194 billion in cash grants to states to help pay for pandemic-related costs, states will have to agree not to use the money to pay for tax cuts through 2024:

(A) IN GENERAL.—A State or territory shall not use the funds provided under this section or transferred pursuant to section 603(c)(4) to either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.

The logic behind the rule, which was inserted at the behest of the right wing of Senate Democrats like Joe Manchin, is obvious: They didn’t want states to go, Hey, cool, federal windfall, and then turn around and cut taxes, leaving themselves in the same budget hole they were in in the first place. The implications, though, could be huge. Since states will now have to refund the federal government an equal amount to what it doles out in new tax cuts, that makes tax cuts effectively twice as expensive: If you decide to dole out $1 billion to residents or companies in your state through lower taxes, the feds will send you a bill for $1 billion on top of it.

Regardless of what you think about tax rates, this might seem like great news for those opposed to sports stadium subsidies, since — assuming the provision is upheld by the courts, which is as yet uncertain — it will make it nigh-on impossible for the next four years to offer a team owner a pile of state tax breaks to juice their construction plans. Unfortunately, there are several major loopholes:

  • Since stadium deals are generally for 30 years or more, a state can simply defer its tax breaks until they’re legal again: Instead of $10 million a year in tax credits from 2021-2050, how about $12 million a year in tax credits from 2025-2050? It would make financing stadium bonds slightly more tricky, but no billionaire worth their salt ever let a little short-term debt stand between them and a subsidy.
  • There are tons of other ways states can subsidize sports projects (or non-sports projects) with resorting to tax breaks. They can just straight-up hand over cash to pay off construction bonds. They can turn over free or discounted land — or better yet, buy it and then turn it over for sports use, which will save the team owner on property taxes. (Since exempting publicly owned but privately used land from property taxes is standard just about everywhere in the U.S., this wouldn’t seem to be a “tax cut” so much as continuation of existing tax policy.) They can create a TIF district, collect at the same tax rates as always, then scrape off whatever’s considered “new” tax revenue and hand it over to the team owner. They can reduce rent or revenue-sharing payments, if the team is making any; or if not, they can institute negative rent and pay the team to play in its stadium. The possibilities really are endless.
  • The new law says nothing at all about city or county tax breaks, which make up a large portion of sports tax subsidies. So not only can a municipal government agree to cut its own taxes on behalf of a sports project, there wouldn’t appear to be anything stopping a state from sending the city a check to cover its tax breaks and passing along the cost to the state treasury, a la the Detroit Red Wings Rube Goldberg device of a few years back.

That’s all off the top of my head, and I am not a tax lawyer, and the actual tax lawyers haven’t had time to delve into the new law’s inner workings yet, so it’s possible some of the above could change. But at first glance, it certainly appears that the tax-cut clawback law will be less of an obstacle to stadium (and other) special subsidies and more of a minor speed bump. If you want somewhere to be optimistic, it at least probably means four years before states can institute, say, new tax credits to try to lure film and TV shoots — though if all the existing tax credits can remain in place, that’s not much of a silver lining. Sorry, I tried to be optimistic for a whole sentence, but it’s hard, man.

Oakland considering stimulus funding for A’s

Largely lost in the to-do about Oakland’s bid to keep the A’s was this from the East Bay Express:

The City of Oakland would not spend any public money on constructing a new ballpark in Jack London Square for the Oakland A’s, but would assemble land and provide infrastructure and parking for the stadium, Mayor Ron Dellums said at a City Hall press conference this afternoon. Dellums and city staffers said the city would use redevelopment funds to acquire property, and not the city’s debt-ridden general fund, and hoped to obtain more federal stimulus money for infrastructure if the project goes forward.

As we’ve seen before, land and infrastructure and parking can add up to a hefty chunk of change, especially in downtown locations like Oakland is considering, where land costs for both the stadium and accompanying garages are likely to be high. Also, add this to the list of sports projects seeking federal stimulus subsidies — not that stadium building doesn’t create construction jobs, but if you’re going to put people to work just to get them work, you’d kind of hope they’d have a bit more public benefit.

Finally, if you had any doubt that stadium-chasing is a phenomenon that affects local elected officials across the political spectrum, the fact that friggin’ Ron Dellums is advocating public spending on behalf of a private sports team should make things eminently clear.

One sports subsidy leaves, one enters

The good news: The New England Patriots parking-lot footbridge is no longer getting federal stimulus money. The less-good news: This is not because anyone thought better of the idea, but rather because it wasn’t expected to be “shovel-ready” by the February deadline. And it still may get state economic development money.

Meanwhile, the city of Glendale may be stepping up to the plate instead, as it’s reportedly considering seeking stimulus money for the Arena, home of the Phoenix Coyotes (at least for the moment). No word on exactly what would get funded by the money — the Phoenix Business Journal helpfully says “financing and job creation.” And even if Glendale gets the benefit from that, given that it’s simultaneously exploring ways to bail out the Coyotes, it could end up little more than a passthrough.

Pats owner gave money to governor

The New England Patriots footbridge controversy widens today, as the Boston Globe reveals that Pats owner Robert Kraft gave $12,000 in campaign contributions to Gov. Deval Patrick at the same time that Patrick was backing a plan to give $9 million in federal stimulus money to the bridge project.

In other stimulus-subsidy news, meanwhile, the Kalamazoo County commission met Wednesday to debate whether to build an $81 million downtown arena for the Kalamazoo Wings, which could use federal stimulus bonds to pay part of the cost. Commissioners were split on the proposal, but are going to keep investigating it.

Patriots’ bridge to nowhere to get stimulus money?

It looks like we may have a winner for first stadium-related project funded with federal stimulus dollars: The state of Massachusetts is moving ahead with a plan to spend $9 million in stimulus money on a footbridge between two parking lots that serve the New England Patriots‘ Gillette Stadium.

If the bridge funding gets final approval from a regional planning board later this month, it will beat out a slew of other projects that have been rumored to be considered using stimulus money: an arena in Kalamazoo, the Columbus Blue Jackets‘ arena, a minor-league baseball stadium in Illinois, etc. Most of these would use subsidized federal bonds approved under the stimulus bill — the Pats seem to be the only ones looking to funnel stimulus cash directly into stadium-related construction.

Meanwhile, Massachusetts secretary of housing and economic development Greg Bialecki made himself the early front-runner for the Nobel Prize in Kool-Aid Drinking by asserting that his state is losing businesses to other states because of its failure to provide public subsidies for private businesses, and that that “is a habit that the Patrick administration is trying very hard to break.” (Actual studies show that subsidies have very little impact on business relocation decisions.) Bialecki added that the question shouldn’t be whether the Patriots owners could pay for the bridge themselves, but rather: “Is the public investment we’re making likely to increase private job creation? And if it is, then it’s a good thing to do.”

Of course, if the Kraft family is interested enough in developing the parking lot that they’d build the bridge themselves, then the “increase” in private job creation from the subsidy is zero. Or if they’d build it with a smaller subsidy, then the same holds true for the excess subsidy amount. And there’s no guarantee the development will even get built, or if it does that it won’t just cannibalize commercial jobs from elsewhere in Massachusetts. I’m never going to get hired as a secretary of economic development, am I?

Teams gear up to demand “stimulus” funds

As I was afraid of, It looks like more teams are going to be following the New Jersey Nets lead and trying to get a piece of states’ federal stimulus funding for their stadium or arena projects. The Minnesota Vikings are pushing their $954 million stadium plan as “a significant jobs and economic stimulus package,” while a developer in Sparks, Nevada, is arguing that an arena is “shovel-ready.” Legislators in both states sounded skeptical — Nevada assemblymember Debbie Smith, who represents Sparks, told the Las Vegas Sun, “I just can’t picture how the general public would think that is the best way to spend our stimulus money” — but hope springs eternal in the stadium game.

Stadium ban dropped from stimulus bill

Atlantic Yards Report’s Norman Oder, the hardest-working blogger in show business, reports that the final version of the federal stimulus bill deleted a proposed ban on stimulus money going to sports stadiums. The amendment, originally introduced by Republican Sen. Tom Coburn, would have barred any use of funds “for any casino or other gambling establishment, aquarium, zoo, golf course, swimming pool, stadium, community park, museum, theater, art center, and highway beautification project.” In the final language, parks, museyms, theaters, art centers, highway beautification, and stadiums were all stripped from the section, though Coburn’s hatred of publicly funded zoos still made it into law.

This still doesn’t necessarily mean a gold rush for sports teams to cash in on stimulus funds by declaring their projects “shovel-ready”: The legislation still restricts funding to certain areas, like transportation or public housing, though there is a worryingly vague provision for “other government services.” Lobbyists are probably Blackberrying frantically right now to figure out how wide they can force this loophole open; you think Al D’Amato types in ALL CAPS when he’s excited?

Nets hire D’Amato to lobby for stimulus funds

And the first “shovel-ready” has been thrown out for a sports facility! Brooklyn Borough President Marty “Those tears of joy are swelling up in me!” Markowitz this week declared of the New Jersey Nets‘ Atlantic Yards arena project in Brooklyn: “This project is shovel-ready, and the jobs it would create are needed now.”

And Nets owner Bruce Ratner, it appears, is already hot on the trail of stimulus funds to bail out his stalled arena project. New York magazine reports that Forest City Ratner officials “have been pushing the idea with Governor David Paterson’s office, trying to elbow to the front of the line before any of the roughly $17 billion in federal aid arrives”; the New York Observer, meanwhile, observes that former Senator Al D’Amato’s lobbying firm filed federal disclosure papers last month showing they’d been hired by Ratner’s development company to lobby for, among other things, “stimulus spending.”

Could it happen? During a conference call with reporters yesterday, both Gov. Paterson and Sen. Charles Schumer denied knowing whether Atlantic Yards would be eligible for stimulus funds. A Brooklyn resident asked the state’s Atlantic Yards ombudsman – yes, this project has its own obmudsman – on Wednesday whether any stimulus money would go to defray Ratner’s costs or the state’s; his reply: “We’re not there yet.”

As for whether Paterson and the others would throw money Ratner’s way even if it’s legal, the Observer’s Eliot Brown sums it up well:

Should the project turn out to be eligible to get money, it would require a major political step by Mr. Paterson to allocate the relatively scarce stimulus money. The project has always been a political hornet’s nest, and to date, neither Mr. Paterson nor his predecessor Eliot Spitzer have had to take any overt, highly public steps in support of it. Given that there are far more projects than there is stimulus funding, it’s safe to say that money to Atlantic Yards would come at the expense of some other project in the area. If eligible, the question then becomes whether or not Bruce Ratner, Al D’Amato, supportive politicians and groups could push Atlantic Yards toward the top of the stack at the same time that other politicans are fighting for projects of their own favor.

Sports bailout: The drumbeat continues

More on difficulties teams are having financing stadiums amid the economic collapse, and their hopes for the government to ride to their rescue. From Sports Business Journal:

The sullen economy and tight credit markets have made it difficult for teams and municipalities to borrow money to fund projects, which in effect has everybody in the facilities industry searching for answers….

“The problem is if you’re not credit-worthy or have creative financing, you won’t get a project underwritten today,” said Chris Dunlavey, a Washington, D.C.-based consultant. “Private packaging sustained by revenues of a project are being completely disregarded these days.”

And then, inevitably, we arrive at the calls for the cavalry to come to the rescue, from a familiar source:

Teams and facility developers acknowledge that sports takes a back seat to the dramatic fallout in other business sectors. However, they are encouraged with President-elect Barack Obama’s push for public infrastructure improvements across the country, developments they feel could create momentum for their own projects.

“The bond markets drying up is not a baseball issue but a nation issue,” said David Samson, president of the Florida Marlins, a team that spent the past 10 years trying to get a deal done before getting the green light to start building a new ballpark this year. “We don’t view that as a risk. If that happens, the Marlins will be the last thing on anybody’s mind.”

That makes about as much sense as most things Samson has said, but it’s still worrisome that the meme of a sports bailout seems to be picking up speed.

The Phoenix Coyotes, meanwhile, are apparently still trying to recoup the $2.70-a-ticket surcharge that is the only revenue the city of Glendale gets in exchange for putting up $180 million of the $220 million cost of the team’s arena. (Rent? A share of arena revenues? Get real!) With the Coyotes leveraged up to their ears in debt, though, and hockey commentators openly talking about the team folding, they may actually get a hearing for throwing good public money after bad.

The New York Times hockey blog has a good rundown of the Coyotes mess, which unfortunately goes awry at the end in trying to argue that NHL teams have moved to the U.S. in increasing numbers not because of the league’s desire to expand into the Sun Belt, but because they “outgrew” their original hometowns, and were beset by rising player salaries:

To cover those escalating salaries, owners needed new revenue. Since hockey was an arena-based gate-receipts business – as it always has been and continues to be – the owners found that they needed more seats, more amenities, more luxury boxes and, yes, even better parking revenue. Many owners got those things. Not all did.

Norman Green, the North Stars owner, issued the ultimatum and was the first to make good on it, in 1993. Unable to coerce a new deal out of the Twin Cities (and with his local mall business failing and facing a sexual harassment suit in the Minnesota courts), he packed up his team and headed to Dallas. Other teams followed, each with their own local twists, turns and absurdities.

In the case of the Jets/Coyotes, there was political wrangling galore and ever-shifting demands from the Jets owners, led by Winnipegger Barry Shenkarow. The public, some politicians and some in the business community exhausted all avenues to save the Jets. But the civic and commercial forces in Winnipeg could not make it work, and perhaps Shenkarow would never have relented anyway.

The problem with this argument is that even with “more seats, more amenities, more luxury boxes,” most new arenas wouldn’t have made money overall – if not for government subsidies so that the teams could reap the benefits of those new amenities without worrying their little heads about construction debt. The NHL’s shift southward, then, has less to do with greedy players or with Sun Belt colonialism than with the fact that unlike Canada, U.S. cities were willing and ready to build lavish new facilities with public money. For no compensation beyond a piddly $2.70 per ticket.

Stadiums as stimulus

Sometimes there’s no satisfaction in being right:

With the state and federal governments looking for ways to jump-start the economy, a New Jersey businessman has an ambitious public works project he says will create more than 5,500 jobs and provide $500 million or more to local contractors.

The businessman is Zygi Wilf, principal owner of the Minnesota Vikings.

The project: A $954 million, state-of-the-art stadium for his football team in downtown Minneapolis — to be constructed using more than $635 million in public money.

Fortunately, the Minneapolis Star Tribune goes on to report that “two legislative leaders laughed out loud” when asked if they’d consider funding a Vikings stadium this session. Let’s just hope Wilf doesn’t start talking up a stadium as “shovel-ready.”