Is Obama Proposal the End of Taxpayer-Subsidized Sports Stadiums?

This article was originally posted by Stateline, an initiative of the Pew Charitable Trusts.

If President Barack Obama has his way, the nation’s taxpayers would not help finance a new arena proposed for the Milwaukee Bucks professional basketball team.

Nor would taxpayer-financed, tax-free bonds be used to help finance a new stadium being discussed in St. Louis for the NFL Rams, or in Oakland for a new complex aimed at keeping the area’s professional football, baseball and basketball franchises from leaving town.

An obscure item in the president’s new budget would put an end to the longstanding practice of states and cities using tax-exempt bonds to finance professional sports arenas, a practice that costs the U.S. Treasury $146 million, according to a 2012 Bloomberg analysis.

The proposal comes as many team owners are pressing cities and states for new facilities, with some threatening to move elsewhere if they don’t get them. State and local officials are wary of seeing pro teams depart, taking prestige and tax revenue with them. But they are also taxpayer-minded and budget-conscious.

Dennis Zimmerman, an economist who worked for the Congressional Budget Office and is now director of projects for the American Tax Policy Institute, is a longtime critic of the financing. He said the president is right in proposing to eliminate the subsidies that benefit often wealthy professional team owners.

“I’m glad he put it in the budget,” Zimmerman said. “Tax-exempt bonds are supposed to be for state and local infrastructure” and not private business.

But politicians and pro-growth business advocates say stadium construction creates jobs, promotes economic development and boosts ancillary retail businesses, such as restaurants, which benefit from having a team in town. They say the teams generate income and sales tax revenue. For their part, team owners are more than happy to get the financial help.

In Wisconsin, Republican Gov. Scott Walker in January proposed funding a $470 million arena for the Bucks with the help of $220 million in state bonds as part of his budget plan.  

Walker said that without a new arena, the Bucks would “likely leave Wisconsin in 2017, costing the state nearly $10 million per year in income tax collections alone.”

The proposal is drawing criticism from conservatives such as the Wisconsin chapter of the free-market group Americans for Prosperity. State director David Fladeboe said the group is “disappointed that the (governor’s) budget still plans to use public funds on the Milwaukee arena.”

Laurel Patrick, Walker’s spokeswoman, said that until Congress acts, the governor is undeterred.

“If the president’s proposal is approved by Congress, we will review the proposal to determine if there is any impact on the Bucks’ … arena plan,” Patrick said.

Others Want New Facilities

Fearing it could lose the Rams or its designation as an NFL city, St. Louis is looking for a new facility that would meet the requirements the National Football League expects of stadiums its teams play in.

Dave Peacock, a former Anheuser Busch executive who is spearheading the drive to keep St. Louis an NFL city, regardless of whether the Rams stay, told a Missouri House committee earlier this month that building a new stadium is the key.

He told lawmakers that the NFL has made it clear that if there’s public financing, a good location and land, and a stadium design that meets the league’s criteria, “you control your own destiny.'’ The implied threat is that if the city cannot assemble those elements, St. Louis will not have an NFL team.

Missouri Gov. Jay Nixon, a Democrat, has said losing the Rams would cost the state at least $10 million a year.

In California, state and Oakland city officials, along with economic development entities, are working on a plan designed to head off the potential defection of all three of Oakland’s major professional teams: The NFL Raiders, Major League Baseball’s Athletics and the NBA’s Golden State Warriors.

The city is looking to construct “Coliseum City,” with new sports facilities for all three teams and retail, residential, commercial and industrial components.

In Minneapolis, construction is underway for a new nearly $1 billion roofed football stadium that has been chosen to host the 2018 Super Bowl and the 2019 Final Four, the climax of the NCAA’s annual men’s basketball tournament. It’s being financed with nearly $500 million from the city and state using federally tax-exempt bonds.

The city maintains that the new construction has also spurred construction of new office space, apartments and a medical clinic near the new stadium.

Michele Kelm-Helgen, chairwoman of the Minnesota Sports Facilities Authority, said the benefits are already evident. 

“We already have over $800 million in development in the few plots around the stadium,” she said. “All of them have indicated the reason they are making the investment is that they want to be part of this stadium complex.”

She said the development includes two office towers being built by Wells Fargo and a hotel project, along with other office buildings and a clinic.

“It’s no longer speculation as to what kind of economic development has resulted from the stadium,” she said. “It’s actual proof.”

Up to Congress

What Congress will do with the president’s proposal to eliminate the tax exemption is uncertain. But tax writers have said that making comprehensive tax changes is not out of the question this year.

President Obama has changed his mind on the issue. In a 2007 presidential primary debate, he was asked whether he made the right vote in the Illinois legislature to finance an upgrade of Chicago’s Soldier Field, where the NFL Chicago Bears play.

“Absolutely, it was the right call because it put a whole bunch of Illinois folks to work, strong labor jobs were created in this stadium, and at the same time, we created an enormous opportunity for economic growth throughout the city of Chicago. And that’s good for the state of Illinois,” Obama responded.

But according to his budget, he now sees tax-free bond financing as setting up an unfair market.

“Allowing tax-exempt governmental bond financing of stadiums transfers the benefits of tax-exempt financing to private professional sports teams because these private parties benefit from significant use of the facilities,” the U.S. Treasury’s “Green Book” said in its explanation of the budget. “State and local governments subsidize that use with taxes or other governmental payments to enable the facilities to qualify for tax-exempt governmental bond financing.”

The Bloomberg analysis found that in the past 25 years, some 22 NFL teams have played in stadiums that were built or renovated using tax-free public borrowing. Sixty-four other teams – baseball, hockey and basketball – also play in arenas constructed with similar financing.

Over the life of the $17 billion of exempt debt issued to build stadiums since 1986, Bloomberg said, taxpayer subsidies to bondholders will total $4 billion.

The tax-free bond provision dates to the 1986 Tax Reform Act. The authors of the bill actually sought to restrict the use of public subsidies for sports teams. The law said that no more than 10 percent of tax-exempt bonds’ debt could be repaid by ticket sales or concession – a provision its authors thought would deter using them to finance stadiums because cities and states wouldn’t want to obligate taxpayers to pay off the rest of the financing.

But it didn’t work. The bonds became attractive to investors because states and cities got creative in the ways they paid off the rest of the bond obligations.

According to Zimmerman, they’ve often stuck tourists with the bill by imposing hotel and rental car taxes that raise “a whopping amount of money that’s paying off a stadium.” Or, he said, they’re “sticking constituents with the tax bill.”

(Image by Drop of Light / Shutterstock.com)