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Sept. 8 — Tax-exempt financing of sports stadiums has cut $3.7 billion from federal tax revenue since 2000, a Brookings Institution report found.
“Current law incentivizes state and local governments to lure professional sports teams with a subsidy from federal taxpayers with little economic benefit,” the Washington-based think tank said in a Sept. 8 news release. “Congress should eliminate or curtail these subsidies for local sports teams.”
The issue of public funding for sports stadiums has been a particularly hot topic of late as the Oakland Raiders football team searches for a new city to call home. Las Vegas has emerged as a favorite, but backers of a $1.9 billion proposal for the new stadium—including Majestic Realty and billionaire Sheldon Adelson's Las Vegas Sands casino company—are threatening to walk away from the project if they don't receive $750 million in public funding for the project, the Associated Press reported Aug. 25.
According to the Brookings report, taxpayers have subsidized newly constructed or renovated professional sports stadiums for local teams in the National Football League, National Basketball Association, Major League Baseball and National Hockey League to the tune of $3.2 billion since 2000. Additionally, because high-income bond holders receive a tax break for holding the bonds, the resulting loss to the government is $3.7 billion, the Brookings researchers found.
Out of the 48 stadiums built or renovated since 2000, the teams receiving the largest federal subsidies from each league were: the MLB's New York Yankees with $431 million in subsidies; the NFL's Chicago Bears with $205 million; the NBA's Brooklyn Nets with $122 million; and the NHL's New York Islanders with $122 million, the report said.
With the Tax Reform Act of 1986, Congress attempted to take away tax exemption for bonds used to finance sports stadiums by removing them from the category of tax-exempt private activity bonds, the researchers said.
The act categorized a bond as private if more than 10 percent of the bond proceeds were to be used by a nongovernmental entity and more than 10 percent of the debt service was secured by property used directly or indirectly in private business. These two conditions are known as the “private business use test” and the “private payment test.”
While there remained a list of private activities specifically exempt from federal taxation, stadiums were excluded, the report said.
The reforms ended up encouraging state and local governments to offer generous financing packages in order to qualify for federal subsidies, the researchers found. “Current law stipulates that in order for state and local governments to issue bonds exempt from federal taxes, local taxpayers have to be willing to finance at least 90 percent of the debt service on bonds,” the Sept. 8 news release said. “Furthermore, the taxpayer money can't come from revenues related to the stadium, even indirectly, meaning that the tax burden falls primarily on the millions of people who don’t attend games at the stadium.”
The report's authors argued that the most direct way to eliminate the practice of stadiums being subsidized with public funding is to eliminate the private payment test in the 1986 act.
“By doing so, any stadium used primarily for ‘private business use' would no longer be eligible to receive federal tax-exempt financing,” the news release said.
If eliminating the subsidies entirely isn't an option, “an alternative approach would limit the federal tax subsidy by classifying stadium bonds as qualified private activity bonds, which would make them subject to a state-wide volume cap, place additional restrictions on their use, and allow financing of the bonds through taxes directed at the beneficiaries of the stadiums,” they said in the report.
In the report the researchers questioned whether federal subsidies are justified for stadiums because they provide some degree of public good.
Overall, they found that stadiums don't meet that criteria.
“Proponents of government subsidies for sports stadiums typically justify them on the grounds that stadiums provide spillover gains to the local economy,” the report said. “The evidence for these spillover gains is weak.”
Academic studies consistently find no discernible positive relationship between sports facility construction and local economic development, income growth or job creation, the researchers said.
“Even if one believes, contrary to the empirical evidence, that the spillover benefits to the local economy justify subsidies, there still remains no economic justification for federal subsidies for sports stadiums,” the report found.
The Obama administration's past two budget proposals have called for an elimination of the private payment test for stadium financing, and the Joint Committee on Taxation proposed a similar change in 2005, the researchers noted.
In March, Rep. Steve Russell (R-Okla.) introduced the No Tax Subsidies for Stadiums Act (H.R. 4838), which would prohibit the use of tax-exempt state and local financing bonds for a professional entertainment facility.
The bill defines such as facility as one that is used during any five days in a calendar year as: a stadium or arena for professional sports exhibitions, games or training; or a venue for any entertainment event that has a live audience exceeding 100 individuals and the net earnings from which benefit an individual or entity other than a governmental entity or a tax-exempt organization.
The bill was referred to the House Ways and Means Committee, but no further action has been taken. The bill has no co-sponsors.
In a March 23 statement, Russell said his bill would close a 30-year-old tax loophole used by sports teams to receive billions in subsidies. He noted that the Office of Management and Budget estimates that repealing tax-exempt bond financing for professional sports facilities will lower deficits by $542 million over 10 years.
“We are talking about a half a billion dollars, if not more, in tax subsidies over ten years,” he said. “When the President is suggesting cutting 40,000 soldiers and is moving to lay off 17,000 civilian employees in the Army, due to a difficult fiscal environment, this becomes about more than just ending a 30-year-old loophole,” Rep. Russell said.
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Text of the report, “Tax-Exempt Municipal Bonds and the Financing of Professional Sports Stadiums,” is available at https://www.brookings.edu/wp-content/uploads/2016/09/gayerdrukkergold_stadiumsubsidies_090816.pdf.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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