Two financial regulators appointed by President Donald Trump released rule changes to the Community Reinvestment Act and one could allow banks to finance upgrades to stadiums under the guise of helping the poor.
Noah Buhayar and Jesse Hamilton covered the potential, which is used as a verbatim example in the law, for Bloomberg on Monday.
What is the Community Reinvestment Act?
The CRA was enacted in 1977 and requires the three regulatory bodies (Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and Federal Reserve) to encourage, evaluate and rate financial institutions on helping to meet the needs of their communities. That includes, and is focused on, low- and moderate-income (LMI) neighborhoods, where it can be more difficult to get loans.
Financial regulators released a reform proposal on Thursday which, if implemented, would be the most significant update in a quarter-century to low-income lending requirements for U.S. banks. It offers specific examples of what activity would qualify under the act, which in tern helps a bank’s rating and helps them pass exams.
The proposal is in the public comment period, but federal officials said, according to Reuters, they were unable to agree on the proposal.
What do bank regulations have to do with stadiums?
This has all come into the sports landscape due to one of the specific examples given in the proposal as a “qualifying regulatory criteria.”
As the first example on page 100 of the proposal:
“Investment in a qualified opportunity fund, established to finance improvements to an athletic stadium in an opportunity zone that is also an LMI census tract.”
That would allow banks to invest in stadiums that are located inside low-to-moderate income areas, get credit for “helping the poor” by doing so — which in turn helps their overall rating for things such as potential mergers and additional branches — and could even get a generous tax break for all of it, per Bloomberg.
According to Bloomberg, the Baltimore Ravens’ M&T Bank Stadium and Denver Broncos’ Empower Field at Mile High are both in what are called “opportunity zones,” the low-to-moderate income areas highlighted by the government. With no qualifications inside the example, banks could give money for things such as an improved sound system, a massive Jumbotron or better luxury seats rather than gains that would assist in employment and opportunity.
Recently announced upgrades at stadiums include state-of-the-art equipment that under the new proposal could be financed by a bank but labeled as assisting poor communities. The Los Angeles Dodgers announced a $100 million renovation this summer that consists of a new center-field plaza, elevators and bridges connecting the outfield pavilions to the main stadium, and a new sound system. The Kansas City Chiefs got a new Daktronics video board, the first HDR-capable one in football, that was announced in July. Overall stadium funding is already under fire by some for being paid for by taxpayer dollars.
Stadiums and arenas in the minor league level would also count if in the opportunity zone. Improvements to the arena won’t necessarily bring jobs, a big get in lower income neighborhoods. The thought process seems to be that nicer things mean more people will come to the stadium, and spent money nearby that will boost that economy, though that isn’t always the case, either.
What one can do to change the proposal
Spokespeople for the FCIC and OCC declined comment on specific examples since it was up for public comment.
“We encourage comment on any and all aspects of the proposed rule,” said Bryan Hubbard of the OCC. “The proposed list of activities related to opportunity zones are intended to encourage economic growth and jobs in low- and moderate-income areas.”
Other examples are supporting art centers in vacant buildings, rehabbing medical centers and installing new factories. The law on stadiums has drawn ire and there’s pressure on clarification for the rule.
Sen. Ron Wyden (D-Oregon) has already put a bill in front of the 116th Congress that deals with the opportunity zone. Introduced last month, the Opportunity Zone Reporting and Reform Act “expands prohibition of investments in certain luxury assets, including private plans, sports stadiums, self-storage facilities and luxury rental properties.”
Wyden said in a statement at the time it was to put in safeguards that “ensure taxpayers are not simply subsidizing handouts for billionaires with no benefit to the low-income communities this program was supposed to help.”
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