The West Haymarket Joint Public Agency (JPA) could lose $3.6 million in annual federal payments as an indirect result of potential changes to the federal tax code. Because of the uncertainty surrounding those changes, the JPA today passed a resolution asking for the federal government to maintain its commitment to provide subsidies for bonds the JPA issued to build Pinnacle Bank Arena. The resolution passed on a three to zero vote. JPA members are Mayor Chris Beutler, University of Nebraska Regent Tim Clare and City Councilman Carl Eskridge.
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 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. "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 bonds."
The U.S. House of Representatives passed a tax reform bill November 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 that the impact of the proposed tax reform measures would add $1.5 trillion to the deficit from 2018 through 2027. A deficit of this 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 impacted.
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. 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. "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."
More information on the West Haymarket JPA is available at lincoln.ne.gov (keyword: JPA).