Pinnacle Bank Arena

The city used bonds to build Pinnacle Bank Arena in the West Haymarket. Proposed changes in the federal tax code could lead to the loss of $3.6 million in annual federal payments — almost $70 million over the life of the bonds.

TED KIRK, Lincoln Journal Star file photo

The group that built the West Haymarket arena and is paying off the bonds could lose $3.6 million in annual federal payments — almost $70 million over the life of the bonds — as an indirect result of proposed federal tax code changes.

Because of the uncertainty surrounding those changes, the West Haymarket Joint Public Agency on Tuesday passed a resolution asking the federal government to maintain the federal subsidy for bonds the JPA issued to build Pinnacle Bank Arena.

The resolution was passed unanimously by the three JPA members: Mayor Chris Beutler, University of Nebraska Regent Tim Clare and City Councilman Carl Eskridge.

Jane Kinsey, with Watchdogs of Lincoln Government, a group that opposed building the arena, spoke against the resolution. She said the city should not have relied on a federal subsidy.

"It is simply unconscionable that you have done this in the first place," she said. 

Kinsey said members of her group will be emailing the Nebraska congressional delegation asking them to disregard the JPA resolution and "keep the U.S. government from supporting frivolous types of projects." 

In 2010, the JPA used $168 million of Build America Bonds and $32 million of Recovery Zone Bonds to help finance the arena improvements. These types of bonds were authorized under the federal stimulus package passed in 2009 in response to the Great Recession.

The bonds were issued with taxable interest, but they are eligible to receive a federal subsidy equal to a percentage of each interest payment.

“While the federal tax reform bills being considered in Congress do not specifically address subsidies for the bonds, we are concerned that unintended consequences will result in the elimination of the subsidies,” said Brandon Kauffman, city finance director and treasurer for the JPA, in a news release.

The subsidy could be eliminated in order to help pay off the $1.5 trillion debt expected to be the result of the proposed federal tax package between 2018 and 2027.

“The JPA is asking our congressional delegation to ensure that the government fulfills its promise to continue to pay the annual subsidies on the JPA bond,” Kauffman said.

The U.S. House of Representatives passed a tax reform bill Nov. 16. The Senate version of the bill has cleared the Finance Committee, and the full chamber is expected to consider it in early December.

The Congressional Budget Office estimates the impact of the proposed tax reform measures would add $1.5 trillion to the deficit from 2018 through 2027. A deficit of that size would require the Office of Management and Budget to issue a sequestration order to cut billions of dollars from mandatory federal programs.

The Build America Bonds and Recovery Zone Bonds are two of the programs that would be affected.

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The JPA is expected to receive $3.6 million in fiscal year 2018 as part of the subsidies from the bonds. The payments made to all entities that issued the bonds are expected to be $3.9 billion. A sequestration order could eliminate all of those payments.

Congress has the ability to override the automatic cuts, but it would need to do so in a separate measure if tax reform passes, and that would require 60 votes in the Senate.

In addition to the bond programs, the cuts could also impact Medicare, border patrol, farm investment programs and price supports, crime victims’ funds and other federally supported programs, according to a city news release.

However, Senate Finance Committee Chairman Orrin Hatch has said Congress routinely exempts affected programs from sequestration cuts.

“We will continue to monitor the federal tax reform bill and whether it will have an impact on the JPA,” Kauffman said in the release.

“A loss of the federal subsidies for interest payments would place a severe financial burden on the JPA, but we won’t be able to determine the consequences until a final version of the tax reform bill is passed.”

Reach the writer at 402-473-7250 or nhicks@journalstar.com

On Twitter @LJSNancyHicks.

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Reporter

Nancy Hicks reports on Lincoln city government, but she’s been following the leaders of local and state government for more than 40 years.

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