Understanding the Controversy Around the Lot J “Breadbox” Loan

There’s been no hotter topic for discussion 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 the site 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 currently, as the project proceeds through city council review, is the $65.5 million “breadbox” loan attached to the deal – which was negotiated by Mayor Curry’s office.

WHAT IS A BREADBOX LOAN?

A “breadbox” loan is a type of long-term, interest-free development loan designed as an alternative to more traditional government grants.

More specifically, the “breadbox” system was formed as a response to the 2017 Tax Act, which made it so that developers would have to pay taxes on those traditional grants. With a breadbox loan, the developer is able to avoid having to pay income taxes on the funds they receive.

The loan is repaid through a trust established solely for repayment purposes; the trust and the developer become co-borrowers on the loan. The city gains access to the trust whenever it’s repaid in full – which can take up to fifty years. The developer makes a 20% contribution; in this case, Khan and Cordish will kick in $13.1 million to guarantee the loan. The developer also controls how and when the loan’s funds are used.

The city is able to sell or transfer the loan; otherwise, it’ll be repaid “under all reasonably foreseeable circumstances.”

Essentially, Khan and Cordish would get a net total of $52.4 million for use on the project, at their discretion, and would pay it back – without interest – over a course of as many as fifty years.

WHY IT MATTERS

According to The Florida Times-Union, the $65.5 million city contribution was originally to come in the form of a grant before later being modified to the “breadbox” structure.

The breadbox loan allows them not only to usurp grant taxes; it also removes the restrictions and regulations often placed on grant funding, which usually require specific construction or economic milestones to be met while releasing funds in stages.

There doesn’t seem to be a clear understanding of what exactly the $65.5 million will pay for – one of several financial breakdowns that are still missing from the project’s details. Nonetheless, the mayor’s office supposedly found it prudent to include the breadbox loan, which gives Khan and his team a tax break, looser regulations, and the ability to borrow money without paying interest on it.

The interest-free aspect of the loan is particularly problematic because the city will likely need a loan of its own to cover it. Such a loan would likely not be interest-free, meaning the city could still find itself paying extra money just for the privilege of granting this unusual breadbox loan to Khan and the Jaguars.

It seems that city officials may agree with the notion that the breadbox loan is excessive. An initial DIA report on the project recommended reducing or reformatting the loan; the report was later modified to note that, while the loan appears to be unnecessary, it may be “non-negotiable from the developer’s perspective.”

To be clear, the breadbox loan is not the only troubling aspect of the Lot J deal, as it stands right now. The project asks for more than $218 million in public funding, but very little work has been put into determining what kind of return the city can expect on that investment, or whether the project itself is even appropriate for the Jacksonville market.

Also on the list of concerns is the unilateral nature of the deal’s negotiations; the agreement was made between Mayor Curry’s office and Khan’s representatives, with both the Downtown Investment Authority and city council largely being kept in the dark throughout the process.

Nonetheless, as Jax city council moves toward further discussion and even a possible vote on the project next Tuesday, it’s looking like the breadbox loan will be the make-or-break issue in whether or not Lot J moves forward as planned.