Understanding the controversy surrounding the “Breadbox” loan Lot J – The Coastal
There hasn’t been a hotter talking point in Jacksonville lately than the Lot J deal.
The deal, which would involve Jaguars owner Shad Khan and developer The Cordish Companies building a mixed-use entertainment center at TIAA Bank’s Lot J parking lot, has become controversial for several reasons, including but certainly not limited to its potential ramifications for the future of the Jaguars in Jacksonville.
But perhaps the biggest sticking point right now, as the project progresses through city council review, is the $ 65.5 million “breadbox” loan tied to the deal – which has was negotiated by Mayor Curry’s office.
WHAT IS A BREADBOX LOAN?
A ready “bread box” is a type of long-term, interest-free development loan designed as an alternative to more traditional government grants.
Specifically, the “breadbox” system was created in response to the 2017 tax law, which required developers to pay taxes on these traditional grants. With a breadbox loan, the developer can avoid having to pay taxes on the funds he receives.
The loan is repaid through a trust established for repayment purposes only; the trust and the promoter become co-borrowers on the loan. The city accesses the trust each time it is paid off in full, which can take up to fifty years. The developer contributes 20%; in this case, Khan and Cordish will pay $ 13.1 million to secure the loan. The developer also controls how and when the loan funds are used.
The city is able to sell or transfer the loan; otherwise, it will be refunded “under all reasonably foreseeable circumstances”.
Essentially, Khan and Cordish would get a net total of $ 52.4 million to use on the project, at their discretion, and pay it back – without interest – over a period of up to fifty years.
WHY IS IT IMPORTANT
According to The Florida Times-Union, the city’s $ 65.5 million contribution was originally in the form of a grant before being later modified to the “breadbox” structure.
The bread loan allows them not only to usurp taxes on subsidies; it also removes the restrictions and regulations often placed on grant funding, which typically require meeting specific construction or economic milestones while releasing funds in stages.
There doesn’t appear to be a clear understanding of what exactly the $ 65.5 million will be paid for – one of the many financial breakdowns that are still lacking in project details. Still, the mayor’s office would have found it prudent to include the Loan Box Loan, which gives Khan and his team tax relief, more lenient regulations, and the ability to borrow money without paying any money. interests.
The interest-free aspect of the loan is particularly problematic because the city will probably need a loan to cover it. Such a loan would likely not be interest-free, which means the city could still find itself paying extra money just for the privilege of granting this unusual loan to Khan and the Jaguars.
It seems that the city authorities may agree that the loan of the breadbox is excessive. A first DIA report on the project recommended to reduce or reformat a loan; the report was then amended to note that while the loan appears unnecessary, it may be “non-negotiable from a developer’s point of view.”
To be clear, the breadbox loan isn’t the only troubling aspect of the Lot J deal, as it stands now. The project calls for more than $ 218 million in public funding, but very little effort has been put into determining what kind of return the city can expect from this investment, or whether the project itself is even appropriate for the market. Jacksonville.
The unilateral nature of the agreement negotiations is also on the list of concerns; the deal was made between Mayor Curry’s office and Khan officials, with the Downtown Investment Authority and city council largely being kept in the dark throughout the process.
Nonetheless, as Jax City Council moves towards further discussions and even a possible vote on the project next Tuesday, it looks like the breadbox loan will be the deciding question whether or not Lot J moves forward. as expected.