As state policymakers across the country consider legislation to provide billions of dollars for professional sports stadiums, taxpayers should be made aware of the impact of these expenditures. New York, Tennessee, and Virginia have provided or are deliberating whether to provide billions of dollars in subsidies for the construction of three new NFL stadiums, and Oakland, California, and Las Vegas, Nevada, are discussing major investments that would either keep the Oakland Athletics in the Bay Area or move them to the Silver State. In each case, stadium discussions have centered on the use of tax-exempt municipal bonds as a primary funding source.
These bonds reduce the cost for municipalities to raise money for public projects such as parks, libraries, and similar facilities by exempting them from paying federal taxes on the bond revenue. Following a boom in the construction of professional stadiums with these bonds beginning in the 1950s, Congress tried to put an end to the practice through the Tax Reform Act of 1986. However, provisions designed to block public spending on stadiums have instead built in a loophole for municipalities to provide funding at the expense of taxpayers.
Under the Tax Reform Act of 1986, 90% of bonds were required to be publicly funded to qualify for tax-exempt status. As a result, municipalities absorbed a greater share of the cost to continue to qualify for the tax-exempt status. Rather than reduce the use of the bonds, this reform encouraged increased taxpayer spending on stadium projects.
The impact of tax-exempt bonds on taxpayers extends far beyond the municipalities that employ them. When cities and states with professional teams use tax-exempt bonds to build stadiums, they take away federal tax revenues that the sale of bonds would usually bring. As a result, taxpayers in the 22 states that lack a professional sports franchise subsidize the cities and states that do.
Government funding of professional sports stadiums through tax-exempt bonds also reduces the resources available for more pressing local projects, such as flood mitigation, school construction, or other infrastructure improvements. For example, between 2000 and 2011, Houston, Texas, in collaboration with Harris County, allocated hundreds of millions of dollars for the construction of NFL, MLB, MLS, and NBA stadiums, which left less money available for much-needed flood-mitigation infrastructure improvements. In 2017, residents felt the adverse impact of the decision to prioritize sports subsidies over infrastructure when the county’s dated flood prevention measures failed during Hurricane Harvey, contributing to widespread destruction.
In many cases, franchise owners seek to bolster their cases by citing debunked claims that investments in professional stadiums will spur economic development. MLB, NBA, and NFL owners point to the stadiums’ abilities to be used to host major events such as the World Series, the All-Star Game, the Final Four, or the Super Bowl. Public funding of a stadium provides a subsidy and massive tax break to multibillionaires while bringing little to no economic benefits to a city or state where the facility is built.
Legislation was introduced in the 115th Congress by Sens. James Lankford (R-OK) and Cory Booker (D-NJ) to address the tax-exempt loophole for stadium bonds, but the legislation was not passed. In February, Rep. Earl Blumenauer (D-OR) introduced H.R. 6806, the “No Tax Subsidies for Stadiums Act of 2022,” which would remove the loophole established by the Tax Reform Act of 1986, which allows cities and states to subsidize multibillion-dollar franchises. Both efforts take a similar approach to eliminating the ability to declare these bond subsidies as tax-exempt, but there should be a coordinated bicameral effort to ensure that the right approach is taken by Congress.
State and local leaders should also take a hard look at how they are spending precious taxpayer resources. Rather than adding to the public debt through stadium bond initiatives that do little to enhance the economic stability of their cities and states, they should instead focus on improving local community services and schools. Or they should give taxpayers a break and stop initiating these bonds altogether.
Ryan Lanier is a state governmental affairs associate at Citizens Against Government Waste.
