The GOP's tax bill could have cost The Q renovation project. The Q just beat it.

Sunday, 05 November 2017, 08:43:18 PM. The GOP tax bill would stop future stadium deals from using tax-exempt financing. The Q wrapped that up two weeks ago.

WASHINGTON - The Q got in under the gun.

The new tax proposal from House of Representatives Republicans Thursday calls for nixing the use of tax-exempt bonds to build or renovate professional sports facilities. Viewed by critics including President Donald Trump as a subsidy to wealthy sports leagues and their multimillionaire owners, tax-free bonds are like loans with low interest rates.

They save stadium and arena owners and operators money, but cumulatively cost taxpayers billions. So House Republicans want to stop any new ones from being issued for these kinds of projects, effective Thursday -- assuming Congress can pass the sweeping tax bill, which is uncertain.

This could have pushed up the cost of extensive renovations at Quicken Loans Arena by millions of dollars -- renovations sought by Cavs majority owner Dan Gilbert, the city of Cleveland and Cuyahoga County. Of the project's $140 million cost, $35.27 million is being financed through the sale of tax-free bonds sold through the county, according to data from Moody's Investor Services.

The bonds will be paid off with taxes from the city and county and payments from the Cavs.

But by completing the financing round Oct. 18, this will not be a problem, said Timothy Offtermatt, a financial adviser with Stifel, Nicolaus & Company. He and his company are the financial advisers for Cuyahoga County.

The bond sale was supposed to occur by summer but was delayed as the project's opponents sought a referendum vote. That effort was dropped.

Read what else is in the tax proposal

Although the Q won't be affected, the loss of future tax-free financing options could affect other pro sports projects that come along. None are known to be on the table in Cleveland right now, but this would have long-term effects. Gilbert hinted last week at a possible new arena in 2034, when the recently extended lease for The Q expires, although a spokesman quickly swatted down speculation.

Since 2000, 36 professional sports stadiums have been financed with tax-exempt bonds, according to a 2016 report from the Brookings Institution, a Washington think tank.

If you watched the Yankees in the playoffs and admired their stadium, you might want to know that you indirectly helped pay a share through New York's use of tax-exempt bonds. The original Gateway sports complex -- what is now The Q and Progressive Field -- used tax-exempt financing, too.

Bonds are a form of a loan with investors betting they'll get paid back at a set date, and they usually carry little risk. Taxable bonds require the investors to pay taxes on their returns. But tax-exempt bonds, issued by a local government or port authority, are safe from federal income taxes. Investors earn less on them than they would on taxable bonds, but the tax savings make up for that lower interest rate. That's why high-earning investors like tax-exempt securities: They avoid taxes on their gain.

Since tax-free bonds don't have to pay a higher return, they cost the issuer - the county and, therefore, the Q project - less money. They make stadium and arena projects less expensive.

But to critics, this raises a decades-old question because essentially, taxpayers and the government are making the cost of stadiums and arenas lower -- and the profits of team owners bigger. The debate: Is this a good or proper role for the federal government?

Tax-exempt bonds for sports facilities have cost the Treasury $3.2 billion since 2000, Brookings says. But that's just counting the savings on the facilities. The bond buyers, typically high-income investors, save too, and when their savings are counted the loss to the federal government comes to $3.7 billion.

The White House has suggested this is unfair, sounding off in the wake of controversies over professional athletes refusing to stand for the national anthem - and the NFL refusing to make them.

"If this industry is going to use money from American taxpayers to build the very fields they play on, then is it really too much to ask that they show respect for the American flag at the beginning of the game?" White House spokeswoman Sarah Huckabee Sanders said recently.

The debate over tax-exempt bonds for sports facilities has raged for years, and Congress tried to end this abuse, as it considered it, in a 1986 tax bill. The bill restricted teams and their owners from qualifying for the bonds by limiting the amount of debt they could repay through ticket sales and related revenues.

So the teams found a work-around with local officials eager to keep or attract professional sports and fans. They got cities and counties to issue the bonds and use various local taxes to pay the debt instead.

This article was reported with Karen Farkas of cleveland.com.

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