$3.2 Billion in Federal Tax Breaks to Sports Stadiums

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A new report finds that the U.S. government has lost $3.2 billion in tax revenues since 2000 through public financing of sports stadiums, including Petco Park in San Diego.

The finding by the Brookings Institution, a Washington, D.C. think tank, were released this month after reviewing the financing of 45 sports stadiums across the country, from New York’s Yankee Stadium to the Arizona Cardinal’s new football stadium.

“We examine the financing for all professional sports stadiums newly constructed, majorly renovated, or currently under construction since 2000 for Major League Baseball, the National Football League, the National Basketball Association, and the National Hockey League,” the study reads. “We find that for these 45 stadiums, the discounted value of the federal tax subsidy is $3.2 billion,” the report concludes.

The estimate of lost tax revenues stems from the fact that part of the financing of these stadiums were provided through the use of tax-exempt bonds, meaning that holders of the bonds did not have to pay taxes on the interest received from holding those bonds.  Under federal tax law, a public agency must issue the bonds and commit to repayment using tax revenues not directly connected to the sports uses of the stadium.

Such tax exempt bonds were used as part of the financing for Petco Park in San Diego. In 2002, $223 million in tax-exempt bonds were sold as part of the ballpark’s $572 million total constriction cost. The report estimates that the lost federal tax revenues from those bonds totaled between $56 million and $68 million. The average amount of federal tax loses per baseball stadium was between $94.5 million and $117.6 million.

“The most direct and simplest reform option would be to eliminate the authority to issue federal tax-exempt governmental bonds for stadiums,” the report states. “Proponents of government subsidies for sports stadiums typically justify them on the grounds that stadiums provide spillover gains to the local economy. The evidence for these spillover gains is weak,” the report concluded.

The now-common use of public financing for stadiums only started in 1953. The construction of early stadiums was all privately funded. Cleveland’s Municipal Stadium in 1931, and Los Angeles’ Coliseum and Chicago’s Soldier Stadium in 1932 were the first publicly funded stadiums, having been built to compete for hosting Olympic Games.

But then in 1953, a new rationale for publicly-funded stadiums began when the Boston Braves agreed to relocate to Milwaukee to play in the city’s County Stadium. The use of public financing to lure teams to move has increased over the past 60 years, and the price tag for such moves has nearly always included tax-exempt financing.

“Absent the subsidies from all levels of government, there would be little incentive for the teams or private investors to finance so many new (and increasingly luxurious) stadiums,” the report states. “The leagues in effect have monopoly power over the placement and number of major sports teams, and therefore have a strategic incentive to expand the number of teams fast enough to deter the formation of rival leagues, yet slow enough to ensure that threats by existing franchises to relocate are taken seriously,” the report adds.

The report also examines the economic impact stadiums have on the local market and whether those benefits outweigh the government subsidies.

“Academic studies consistently find no discernible positive relationship between sports facility construction and local economic development, income growth, or job creation,” the reports concluded.  “Even if one believes, contrary to the empirical evidence, that the spillover benefits to the local economy justify subsidies, there still remains no economic justification for federal subsidies for sports stadiums.”

The report concludes that, although there may be indirect economic activities to the local economy from the development of stadiums, any gains are realized in increased property values, sales taxes, or other local taxes to cities and counties, but not to the benefit of the federal government that gave the income tax subsidy in the form of lost tax revenues.

“The simplest and most direct way to address this inefficient federal subsidy would be to eliminate the private payment test for sports stadiums, which would eliminate the authority to issue federal tax-exempt governmental bonds for stadiums,” the report suggests.

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