If you were reading pretty much anywhere last night, you probably saw a headline like this:
Lawmakers introduce bill to eliminate subsidies for pro stadium construction, citing in part Washington Commanders probe
As juicy as “eliminate subsidies for pro stadium construction” may sound, let’s cut to the chase: This bill would leave the vast majority of stadium tax breaks and other subsidies intact, it’s not new, and if history is any guide, it’s not going to pass. Other than that, break out the champagne!
The new news, in brief: Three Democratic Congressional representatives, Reps. Jackie Speier of California, Don Beyer of Virginia, and Earl Blumenauer of Oregon, introduced a bill yesterday called the No Tax Subsidies for Stadiums Act. The bill would amend the U.S. tax code by making taxable any bonds that are used to “finance or refinance capital expenditures allocable to a facility (or appurtenant real property) which, during at least 5 days during any calendar year, is used as a stadium or arena for professional sports exhibitions, games, or training.”
The particular subsidy this is meant to eliminate is the use of federally tax-exempt bonds for sports venues, a loophole with a long history dating back to the 1986 Tax Reform Act. That was the first time Congress noted that cities building new stadiums for sports teams were using their ability to finance projects with tax-exempt bonds — meant to be a way to cheaply raise money for non-profit-making municipal projects like parks or libraries — and thereby passing along a chunk of the cost to federal taxpayers, since bondholders wouldn’t owe federal taxes on the bond proceeds, meaning they would accept lower interest rates, meaning effectively the IRS was underwriting … the math gets complicated, but let’s go with as much as 20% of all stadium construction costs.
What happened next, as related in Field of Schemes the book:
By the early ’80s, so-called private activity bonds were everywhere — amounting to nearly 80 percent of all government bonds issued, and soaking up so much capital that there was little left over for genuine public interest projects. So Congress made a point of eliminating this subsidy as part of the 1986 Tax Reform Act, making private-activity bonds [i.e., those for projects either funded by or benefitting private companies] subject to the usual taxes. And in what was intended as a death blow to public-stadium deals, lawmakers specifically declared sports-construction projects to be private activity and thus taxable.
The 1986 law left two loopholes, however. First off, all projects already in progress were exempted from the new restriction. And second, it left one way to declare your sports construction bonds still tax-free, albeit at a tremendous cost to local governments:
The Tax Reform Act had redrawn the definition of private-activity bonds to be exceedingly strict: If more than 10 percent of the facility’s use was to be by a private entity, and more than 10 percent of the bonds would be paid off by revenue from the private project, the bonds were considered taxable. But what if the stadium lease were drawn so that total government revenues — whether from lease payments, ticket surcharges, parking fees, or whatever — were held below that 10 percent threshold? The local government issuing the bonds would take a bath on them, for sure. But if a city’s political leaders were willing to go along, teams could still have the use of tax-exempt bonds — and a guaranteed 90 percent of the resulting revenues to boot.
This 10%-test loophole got pricey in a hurry. In 2012, Businessweek estimated that the federal government was set to kick back $4 billion in taxes from 1986 through 2047 on stadium and arena bonds that had already been approved. In 2016, the Brookings Institution calculated $3.7 billion in tax-exempt bond subsidies on sports projects approved since 2000 alone.
Meanwhile, efforts to close the loophole appeared regularly on Capitol Hill:
- In 1996, Sen. Daniel Patrick Moynihan of New York, the main author of the 1986 bill, introduced a bill to make all sports stadium bonds taxable.
- In 2007, the House Committee on Oversight and Government Reform held hearings on repealing the tax-exempt bond subsidy, at which many eminent sports economists and stadium experts testified, and also me.
- In 2012, Congressional deficit-reduction discussions reportedly looked at eliminating the tax-exempt bond loophole in order to raise more money for the federal budget. Similar talks were reported the following year.
- In 2015, Barack Obama proposed getting rid of the 10%-revenue loophole for all private projects, sports or otherwise.
- In 2017, U.S. Senators Cory Booker of New Jersey and James Lankford of Oklahoma — the latter a Republican this time — introduced a bill to outlaw the use of tax-exempt bonds for any pro sports venues.
- Later in 2017, following conservative protests over NFL players taking a knee during the national anthem to protest racism, Donald Trump called for eliminating tax-exempt bonds for NFL stadiums in particular, and the Republican-controlled House inserted language to outlaw them for all sports facilities in that year’s tax bill. Then the Republican-controlled Senate stripped the stadium-subsidy-ban language back out again, at Trump’s specific request.
- In 2019, Booker and Lankford reintroduced their bill.
Needless to say, aside from the language in the 2017 House tax bill — which probably only passed because House Republicans knew their Senate comrades would remove it, keeping their fellow millionaires’ tax breaks intact — none of those bills went anywhere, and the tax-exempt bond loophole remains intact today. That seems the likely fate of this latest bill as well, though it’s always possible that rage over the numerous sexual harassment allegations against Daniel Snyder will create more support for repeal than billions of dollars of lost federal tax money has.
As I discussed a few years back for Vice, if Congress really wanted to kill sports stadium subsidies dead rather than just talk about it, they would not only close the 1986 tax-exempt bond loophole, but go after all the other subsidies, tax and otherwise, that provide more than a billion dollars a year in public money toward pro sports facilities. And there’s a relatively easy way to do so, too:
Back in 1999, a U.S. Congressmember from Minnesota, David Minge, introduced a bill that would have taken on not only sports subsidies, but all local corporate subsidies in one fell swoop: The Distorting Subsidies Limitation Act would have established a new excise tax on all special benefits that private corporations got from state or local governments. In other words, you can have your $1.8 billion, Steinbrenners and Wilpons, but you’re going to owe tax payments to the IRS on that full amount.
Minge’s bill died immediately, of course. But it’s worth remembering that Congress does have the power to eliminate some or all stadium subsidies with the stroke of a pen — it simply chooses not to.
Its funny that Cory Booker would introduce such a bill when he sponsored “Opportunity Zone” legislation where many of the opportunity zones were areas around sports facilities and many of the beneficiaries were sports teams owners. Dude is such a phony.
I didn’t realize you appeared before Congress. And I’ll bet you never expected you’d still be talking about this topic 15 years later.
If there’s one thing that teaches you fast about the futility of fighting entrenched power (or at least the molasses-slow progress of doing slow), it’s testifying in front of Congress.
It was a fun time hanging out with the rest of the panel, though. And I thought the testimony was excellent, and had a great time arguing with the Congressmember from Dayton who thought his city’s new minor-league baseball stadium had saved it from being, I dunno, Akron?
Touché. I rather enjoyed watching.
It’s always incredible the idea that the new stadium will cure everything preserves when we have evidence that a stadium can just as easily cripple a town and leave them with nothing. Just ask Camden, Atlantic City, Newark, or any former Atlantic League market.