Category: federal tax credits

I followed up on Monday’s quick take on what Donald Trump’s infrastructure tax-break plan could mean for stadium subsidies with a longer investigation for Vice Sports, and after speaking to a half-dozen experts in the field, the conclusion is: This is mostly a plan to coerce states into outsourcing roads and other big public projects to private companies, but if it means funneling money to things like stadiums and calling it “infrastructure,” they’ll probably take that too.

While some [public-private partnerships] have worked out well, the failures have been of epic proportions. A few years ago, Texas contracted out State Highway 130 to a private developer, which skimped on construction costs by installing cheaper asphalt rather than sturdier concrete, resulting in what the Austin Statesman described as “a rumbling, dangerous washboard effect that tends to last for a couple of seconds each time.” Despite a much-ballyhooed 85-mile-per-hour speed limit, the road’s builders filed for bankruptcy earlier this year, sticking the federal government with a half-billion-dollar tab for its piece of the P3.

Under Trump’s proposal, more for-profit companies getting involved in building public roads would probably be the best-case scenario. Without strict limits on what qualifies for the Trump tax breaks, all sorts of projects for private benefit could end up being rebranded as “infrastructure.” We’ve already seen mayors and business leaders propose everything from affordable housing (this from the mayor of D.C.) to “Internet of Things technology” (this from the CEO of IBM, which makes—you guessed it—said technology) as infrastructure projects…

You can probably see where this is going. John Q. Governor decides that he wants a slice of that sweet, sweet Trump money so he can show voters that he can get benefits for his state. He doesn’t need another toll road, and no private investors are looking to build a new sewage system because sewage doesn’t pay the bills (and also, ick). However, the local arena shuffleboard team is asking for a new stadium, and shuffleboard arenas are infrastructure, right? Like, the kids can use them to practice for pro shuffleboard careers? Plus, jobs. Jobs are totally infrastructure!

Do I think that Trump is definitely going to unleash billions of dollars of federal sports subsidies on top of the couple billion a year currently being spent by local governments? No. Do I think that he’s set to open a giant loophole that every sports team owner is going to try to figure out how to drive a stadium through? Yeah, that one.

Ever since election day, there’s been talk that one Donald Trump policy proposal swiped from the Democratic playbook would be a massive program of federal spending to, as his website says, “pursue an ‘America’s Infrastructure First’ policy that supports investments in transportation, clean water, a modern and reliable electricity grid, telecommunications, security infrastructure, and other pressing domestic infrastructure needs.” Some local officials have responded enthusiastically, with New York Gov. Andrew Cuomo saying he hoped this would lead to increased funding for long-planned public transportation projects like bridges and airports.

According to an op-ed in Friday’s Washington Post, though, Trump’s actual plan wouldn’t actually involve any increased funding to public construction projects. Former Obama stimulus-spending czar Ronald Klain, citing a report by two Trump policy advisors, writes:

The Trump plan doesn’t directly fund new roads, bridges, water systems or airports, as did Hillary Clinton’s 2016 infrastructure proposal. Instead, Trump’s plan provides tax breaks to private-sector investors who back profitable construction projects. These projects (such as electrical grid modernization or energy pipeline expansion) might already be planned or even underway. There’s no requirement that the tax breaks be used for incremental or otherwise expanded construction efforts; they could all go just to fatten the pockets of investors in previously planned projects.

If you’re a regular reader of this site, this should be sounding familiar: Tax kickbacks to projects that might take place anyway are the M.O. that has helped create the $2-billion-a-year sports stadium and arena subsidy industry — not to mention a slew of other subsidies to businesses from auto plants to airplane factories, plus the innumerable construction projects that receive tax increment financing even though they’d still be built without it.

What would be new under the Trump plan would be a massive federal outlay for these kinds of privately built projects. (Right now the main way the federal government subsidizes local private construction projects like stadiums is via tax-exempt bonds, which amounts to a whole bunch of money, but not nearly as much as if the feds were subsidizing projects directly.) The Trump policy paper, by leveraged buyout king Wilbur Ross and UC-Irvine economist Peter Navarro, is maddeningly unspecific about what projects would qualify for Trump income tax credits. But given that the rebates would be limited to projects that private-sector builders were interested in building — and that it’s likely to be left up to local governments to determine what to use the tax credits for, as the Trump policy report promises to “provide maximum flexibility to the states” — don’t expect to see a whole lot of new bridges when there are for-profit housing developments and, yes, sports stadiums to be built that would be far more lucrative for their builders.

At minimum, the Trump plan would be a way to coerce state and local governments to deal in private developers on otherwise public projects, with the private contractors getting to extract a “10% pretax profit margin” (it’s unclear whether that’s a guarantee or just an estimate). But if it ends up just being a way to subsidize private construction projects by rebranding them as “infrastructure” — something that has already been used to justify local-level stadium subsidies in the past — then we could easily see a whole lot of sports team owners lining up with their hands out. If the Trump plan moves forward, we’re going to need to keep a super-close eye on the arcane details of how the eligibility rules are written; it’s either that or trust state and local government officials to decide what to use the federal tax rebates for, and we’ve seen how well that’s worked before.