Tax-free stadium bonds cost U.S. taxpayers $3.7B since 2000 for no damn reason, says study

It’s been public knowledge for decades that the federal government spends billions of dollars subsidizing private sports stadiums through tax-free bonds for no good reason: Sen. Daniel Patrick Moynihan tried (and failed) to address it in 1986 through the Tax Reform Act and again ten years later, Congress has held hearings about it where myself and others testified, and President Obama has proposed eliminating the tax-exempt bond loophole in his annual budget.

Still, that’s not the same as a major think tank actually itemizing the cost to U.S. taxpayers of allowing tax-exempt bonds to be used for sports facilities: $3.7 billion since 2000, according to a new Brookings Institution study (full PDF here).

All together, the federal government has subsidized newly constructed or majorly renovated professional sports stadiums to the tune of $3.2 billion federal taxpayer dollars since 2000. But because high-income bond holders receive a windfall gain for holding municipal bonds, the resulting loss in total revenue to the federal government is even larger at $3.7 billion.

Those two numbers require a little explanation. When a stadium or arena is built with tax-exempt bonds, the bondholders don’t pay taxes (duh) on the bond payments. That means that they’ll accept a lower interest rate, so stadium builders get to save money on construction financing — about $3.2 billion worth over the past 16 years. But stadium builders can’t precisely enough calibrate interest rates to extract all that savings for themselves, so bondholders end up getting part of the windfall as well — about $500 million since 2000.

That $3.7 billion number is a whopping big figure, but the Brookings report goes on to itemize the cost for every sports facility built in the U.S. since the turn of the millennium:

screen-shot-2016-09-09-at-8-09-21-amSomebody at Brookings clearly understands how the media works, because a chart like this is crack for local journalists looking for a good news hook. Already this morning there have been stories in the Denver Post on the Broncos‘ federal subsidy (“shortchanged federal tax collectors by $54 million”), in the Pittsburgh Post-Gazette on that city’s three new venues (“The Penguins received the second biggest subsidy among National Hockey League teams, topped only by the New York Islanders at $122 million”), and in the San Diego Union-Tribune on the Padres‘ federal subsidy, and that’s just what Google alerted me to when I woke up.

Moreover, the study makes clear, these tax breaks have been provided for no real reason at all: Unlike local-level subsidies, which are dumb but at least if you squint can be seen as keeping the team in town or boosting the local economy a smidge or something, federal stadium subsidies don’t benefit the U.S. as a whole even one iota.

Decades of academic studies consistently find no discernible positive relationship between sports facilities and local economic development, income growth, or job creation. And local benefits aside, there is clearly no economic justification for federal subsidies for sports stadiums. Residents of, say, Wyoming, Maine, or Alaska have nothing to gain from the Washington-area football team’s decision to locate in Virginia, Maryland, or the District of Columbia.

Whether all this attention results in anything being done about the situation is another story: When Moynihan tried to pass a bill in the ’90s to rein in federal stadium subsidies, the New York Times reported that he’d been forced to “retreat under a hail of lobbying fire,” and matters aren’t likely to be much different today. (Obama’s budget plan to do the same thing never got seriously considered in Congress.) I’d like to say that maybe there’s a chance for change if the Democrats retake both houses of Congress in January — after all, their putative leader for the last eight years has declared that this is something that needs reform — but given sports leagues’ lobbying power with both parties, I’m not holding my breath. Still, drops of water turn a mill, right? Maybe one of these decades…

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13 comments on “Tax-free stadium bonds cost U.S. taxpayers $3.7B since 2000 for no damn reason, says study

  1. Isn’t the total cost of stadium bonds way understated here since there are many venues built before 2000 that have bonds that carried into 2000 and beyond?

    1. The idea is that the subsidy was locked in when the bonds were sold. If you’re going to look at actual year to year tax losses, you’d need to account for the fact that some of the venues on this list are still making bond payments for a long while yet, too, so it’d pretty much even out.

  2. I don’t know that “Because it doesn’t benefit the nation’s economy” is the most solid argument there is. The Federal government does plenty of things that bolsters only local economies. I wouldn’t argue against aid to Baton Rouge because it helped only them.

    No, I think the better argument against is that they promise a boost to local economies that rarely materializes, plus being extremely expensive job creation packages. These two reasons are good enough. They’re actually very solid reasons.

    Flood relief is a good reason to lose money; entertainment is a really lousy reason to lose money. Good government vs. bad government.

    1. Flood relief doesn’t help Baton Rouge at the expense of other cities, though. Giving a tax break to, say, the Penguins so that they don’t move to Kansas City is entirely a zero-sum game, federally speaking.

      1. Neil,

        Correct me on this, but doesn’t the content of this report run counter to, let’s say the economic justification for the funding that went into Camden Yards? As in that bonds, lottery monies, etc would result in a structure which would create a benefit, via main employment and then the ‘multiplier effect’ employment? (Assuming of course, the Orioles were competitive and the tourism based on stadium architecture fanatics had created that much of a flow of persons at the turnstiles).

        Of course, in the above…..I could be wrong.

        1. Such that the economic benefit argument makes any sense, it’s that it gets more people spending money in your city instead of out in the suburbs and beyond. So for the U.S. as a whole, any gain one place is canceled out by a loss somewhere else.

          (This is *not* the case, interestingly, for stimulus spending, which is deliberately meant to boost the overall economy by greasing the wheels of a stuck economy. But in non-recession economics, you can’t do much for the economy by trying to get people to spend money they don’t have. Not for very long before the bubble bursts, anyway.)

    2. I’m not arguing against federal or state relief funds for disaster victims… but surely opportunity cost applies to goodwill efforts just as it does to other types of spending?

  3. Great report, thanks for the link.

    If the results of the upcoming election could fundamentally change federal policy, I would have to think that the results of the last two elections could have done the same (especially the one where the Democrats “won big” in both houses). The reality is that, fundamentally, both major parties are addicted to wealthy donors, and thus to their paid lobbyists. Trying to define the thin line between the two is much like Orwell’s point about some pigs being more equal than others. It will make no difference who wins in November, those who can afford to pay the most for access will continue to dominate our policy making machinery.

    Many governments have fairly strict policies (sometimes even laws) that prevent them from ‘making available by let or favour’ their credit facilities to private enterprises. There are many, many good reasons for such policies – not least that it makes a truly free market almost impossible to maintain.
    Most offer their credit facilities by way of guarantee anyway, as appears to be the case here.

    How can we claim to be capitalists when we continually skew the marketplace through the application of subsidy to certain areas of it?

    Any argument in favour of stadium or professional sports spending can also be deployed in favour of the government wading into healthcare, insurance, telecommunications or nearly any other field you’d care to name. All of these areas (and many others) could reduce their cost to users if the US government was their guarantor (or more directly as the actual service provider).

    Why is it that sports businesses are so deserving of this generousity?

  4. Aren’t college an high school stadiums also built with tax exempt bonds and dwarf even the professional stadiums in total costs? Part of the runaway costs of colleges is spending on sports facilities. You have had a few posts on $65 million high school stadiums in Texas. In recent years, has had some posts on athletics spending at UC Berkley, etc

  5. $3.7 billion over 16 years when the Federal budget is multiple trillions every year. Yeah this is totally worth getting outraged over.

  6. Not sure Islanders (NHL) is entirely fair — they were not a part of the building process and moved in a couple of years after Barclays Center opener. They are a tenant. To say that they play in a building that jacked up tax bill is fair, but I’m not sure what benefit, if any, they derived from ity.

  7. Whaddya mean, “no damn reason”?? Sheesh.

    If making us sports team owners not just filthy rich like we already are, but uber-rich like we deserve to be doesn’t constitute a damn reason, well, I don’t know what does!

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