Category: rich people don’t let rich people pay taxes

Friday roundup: Commanders buyers’ $500m tax writeoff, SF soccer stadium surprise, commissioners gonna commissioner

access_time personNeil deMause

Can you believe we got through almost an entire week without talking about the Oakland A’s and their planned Las Vegas stadium and its path through the Nevada legislature? I already miss that crazy cast of characters: For-the-Record Jeremy Aguero, the relentless tweeters of the Nevada Independent, the blue recess screen. Yes, they botched the ending, but we’ll always have the memories.

And we’ll always have the future, where we’re going to spend the rest of our lives. Which will be the next stadium drama to become a breakout hit? You make the call:

  • Josh Harris and his friends will get a potential half-billion-dollar tax writeoff for their $6 billion purchase of the Washington Commanders, and while I don’t totally understand Mike Ozanian’s explanation of how it will work — something about amortizing part of the purchase price as being for “intangible assets” — I hope it has something to do with the Bill Veeck depreciation dodge, because that’s a great story worth revisiting.
  • San Francisco Mayor London Breed, in the middle of answering a question of whether her city is in the midst of an urban “doom loop” (spoiler: it’s not) by saying, “we could even tear down the whole [Westfield Mall] and build a whole new soccer stadium,” which is an interesting idea not least because San Francisco doesn’t have a soccer team in need of a stadium (it has the lower-division San Francisco F.C., but its owners haven’t been pushing for a new home), while nearby San Jose already does. Mayor Breed, I have some followup questions, oh crap, she’s gone already.
  • NHL commissioner Gary Bettman “provided an update” on the Arizona Coyotes’ arena situation yesterday, and it is: “They’re in the process of exploring the alternatives that they have in the Greater Phoenix Area.” Does it actually count as an update when you’re just saying the same thing everyone already knew? Discuss.
  • Time magazine asked MLB commissioner Rob Manfred about why a Las Vegas A’s stadium should get public financing, and the faux-pas-missioner replied, “I have read obviously peoples’ arguments about public financing. There’s an equal number of scholars on the opposite side of that issue,” which, I’m sorry, what? Is this one of those dark matter things, where there are thousands of economists who think that public stadium funding is a good idea, they’re just invisible? Mr. Manfred, I have some followup — oh crap.
  • Nashville journalist Justin Hayes unearthed some emails between the Nashville mayor’s office and the Tennessean over the paper’s coverage of the Titans stadium deal, and they’re a gold mine of showing how the media sausages are made: My favorite bit is where the mayor’s communications chief asks for “two half sentences” to be inserted into an article to counter “the vocal echo-chamber of folks who are reflexively negative,” which it’s fair to say he eventually got and then some.
  • Construction has stopped on Pawtucket’s half-finished Rhode Island F.C. soccer stadium after developers ran out of money, and one can only hope that the city will be left with a ruin half as impressive as Valencia’s.
  • More on U.S. Rep. Barbara Lee’s proposed Moneyball Act, which would apparently require any baseball team that moves more than 25 miles to pay its former host city and state “not less than the State, local and or Tribal tax revenue levied in the ten years prior to the date of relocation,” or else baseball would lose its antitrust exemption. That’s a kind of arbitrary and vaguely defined price to hold over MLB’s head, but arbitrary and vaguely defined is probably good enough for government work that is never, ever going to pass anyway.
  • If you’re really jonesing to hear me go on and on about the A’s again, check out my appearance yesterday on KPFA, which should ease your withdrawal symptoms. I did not provide any updates, but we did cover a lot of ground, including the enduring question of what John Fisher is thinking spending $1 billion to move his team to what would be MLB’s smallest stadium in its smallest TV market.
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Congressional bill would outlaw stadium tax breaks, except for most stadium tax breaks

access_time personNeil deMause

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:

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.

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Friday roundup: Raleigh to pay Hurricanes $81m to stay put, Calgary arena blows budget, plus sports owners’ 70-year-old tax dodge

access_time personNeil deMause

Hi, all! I’ll be traveling next week to one of the parts of the globe where things happen a bit later in the day (because of time zones, not because everyone sleeps in — but wouldn’t that be a great place?), so anticipate posts to be a bit tardier and possibly more sporadic. I’ll be back in plenty of time for that big Oakland A’s stadium hearing on the 20th, though, so expect a report on that one bright and early. (Unless you live in, say, Europe, in which case you’re already taking an afternoon siesta by the time FoS wakes up, lucky you.)

But enough about living on a spherical planet, let’s get to this week’s news:

  • That five-year lease extension that Carolina Hurricanes owner Tom Dundon supposedly signed more than a year ago actually just got finalized by the state-run Centennial Authority yesterday, and we now have some more details on the terms: In exchange for agreeing to stay put from 2024-29, Dundon, a billionaire subprime auto loan baron who just completed his purchase of 100% of the hockey team, will pay zero rent starting this year, plus will get paid $9 million a year in City of Raleigh and Wake County food and hotel tax money through 2029 to cover both operating costs and arena upgrades. There’s also an out clause in the lease where the ‘Canes owner can pay a termination fee and leave early anyway, starting at $31 million in 2024, and sinking to $3 million in 2028. Authority board member and resume-padding yacht salesman Randy Ramsey worried aloud that “I can see us getting to about 2029 and the Hurricanes, or whomever our partners are at that point, saying the building is dilapidated” and needs to be replaced — and Ramsey was one of the board members voting for the lease extension. This is hardly the first case of a team getting paid to play games in its home arena — it’s practically an annual tradition in, say, Indiana — but it’s still a pretty egregious one, especially since North Carolina taxpayers will end up sending enough money Dundon’s way to pay any relocation fee for him, which isn’t quite what a lease guarantee is supposed to do.
  • The Calgary Flames arena project is now $50-60 million over budget, and the CBC reports that “adjustments are now being made to control the costs, which include interior finishings and parts of the building’s exterior.” That seems like an awful lot of money to try to save just by eliminating some sconces, but more power to them if they can do it without value-engineering the place right out of working for hockey. (In case you’re wondering, it would take a two-thirds vote of the Calgary council to approve more money beyond the $250 million-ish already approved.)
  • ProPublica yesterday ran a long article (the only kind it ever runs) about the special tax dodges that sports team owners use to cut their tax bills, in particular the ability to depreciate the value of your players as if they were machine parts that wear out. (ProPublica, as some of you may know, is currently my day job, but I had no involvement with this story.) This is an old, old dodge in sports circles, having been first invented, as ProPublica notes, by then-Cleveland Indians owner Bill Veeck in the late 1940s; here’s a good Sports Illustrated article about it from 1978. I first read about it in (checks Field of Schemes endnotes, I knew there was a reason we included those) Andrew Zimbalist’s 1992 book Baseball and Billions, and then later talked with sports economist Rod Fort about how he and fellow economist Roger Noll had exposed how then-Milwaukee Brewers owner Bud Selig had assigned 94% of the value of his team to the player contracts he’d bought along with the rest of the Seattle Pilots franchise in 1970, thus allowing him to take almost the entire $10.8 million purchase price as a double-dip deduction — only to be told by a judge, in Fort’s recollection, that “well, that’s a good piece of work, but I can see no reason that Selig’s choice violates the accepted rules of accounting in Major League Baseball.” (ProPublica also didn’t mention that the depreciation tax break only really works when the capital-gains tax rate is lower than the income tax rate, as it is now, or else you end up paying the same taxes anyway when you sell the team, something that helped keep Veeck from ever taking advantage of the tax dodge he concocted — but I think this bullet point has already exceeded its maximum allowable parentheticals, so you’ll have to look that one up yourself.)
  • Tokyo has finally given in to reality and barred spectators from the upcoming Olympics, in the face of a virus surge there. (Japan’s vaccination rate is surprisingly crappy, thanks to slow vaccine approvals and something about not allowing pharmacists to give shots but allowing dentists to.) If there’s good news, it’s that once Japan barred foreign fans from attending, spending billions of dollars to host the Olympics looked like an even worse deal once locals wouldn’t even get tourists’ filthy lucre; though I guess now they’re still spending the money and not getting either filthy lucre or the chance to watch Greco-Roman wrestling in person, so maybe there is no good news at all. (For anybody, anywhere.)
  • Looks like the Reading city council is down with giving $3 million to the Fightin Phils for stadium renovations. Now all they need is $3 million from the county and $7.5 million from the state of Pennsylvania, and they’ll be all set, at least until the next time the Fightin Phils owners — which would be the Philadelphia Phillies owners, who are demanding upgrades as necessary thanks to new MLB rules on minor-league facility minimum standards that they themselves voted to impose — decide their stadium is obsolete because their weight room isn’t roomy enough.
  • The … the Phoenix … Suns are in the NBA Finals, so of course someone’s going to write an article about how great this is for the Arizona economy. Two Arizona economists say so, arguing that people might see images of Phoenix on TV during the finals and decide to move there. Or, you know, decide that Arizona on the fast track to being an uninhabitable hellscape. Definitely one of those two!
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