House bill strikes tax-exemption for stadium bonds

Tax-exempt bonds for sports stadiums are once again in the crosshairs under a bill introduced this week by Oregon Democrat Rep. Earl Blumenauer.

The bill would amend the tax code – or "close a loophole," as Blumenauer said – to eliminate the federal tax exemption for bonds that finance or refinance capital expenditures for a stadium or arena that is used for professional sports games, exhibitions or training at least five days a year.

"While professional sports teams promise state and local governments that their stadiums will produce local economic development and job creation, there is no quantifiable evidence that they provide these benefits," Blumenauer said in a press release announcing the bill. "Providing a federal subsidy for a professional sports stadium requires residents of a state without a professional team to subsidize a stadium in another part of the country, where they receive no benefit whatsoever. Public financing creates a race to the bottom where teams worth hundreds of millions, or billions, of dollars have all the leverage to exploit city budgets for their own gain."

Blumenauer said he has support from Sens. Cory Booker, D-N.J. and James Lankford, R-Okla., in the Senate. The two senators in 2017 introduced a similar bill.

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A March 2020 paper from the National Tax Journal that argued against the subsidies estimated that about $16.7 billion of tax-exempt bonds have been issued since 2000 to finance 43 new or majorly renovated stadiums. The present value federal tax revenue loss from those deals totaled $4.3 billion, assuming a 3% discount rate, in 2018 dollars, the journal said.

The legislation marks the latest in a long series of measures, many of which have been bipartisan, that aim to eliminate the use of tax-exempt private activity bonds for the financing of sports stadiums.

Almost exactly a year ago, Rep. Jackie Speier, D-Calif., introduced the No Tax Subsidies for Stadiums Act of 2022 along with Blumenauer and Rep. Don Breyer, D-Va. The bill, which featured the same language as the latest version, did not move from the House Ways and Means Committee where it was introduced.

In 2016, Rep. Steve Russell, R-Okla., introduced similar legislation, the No Tax Subsidies for Stadiums Act.

The nearest the effort came to fruition was in 2017, in the House version of the Tax Cuts and Jobs Act, which eliminated tax-exempt advance refunding. The provision, which included state or private college athletic stadiums, was dropped during the House-Senate conference committee on final legislation.  

Former President Obama also took a stance against taxpayer funding for stadiums and arenas in his fiscal 2016 and 2017 budgets, which eliminated the use of tax-exempt bonds for private sports facilities by eliminating the private payment test for them, which meant that bonds would be taxable private-activity bonds if more than 10% of the facility was used by private parties.

Under current tax code, a bond is considered a private activity bond if more than 10% of the bond proceeds are used for any private business and more than 10% of the bond proceeds are secured directly or indirectly by interest in property used for a private business, or more than 10% of the bond proceeds are derived directly or indirectly from payments in respect of property used for a private business use, according to IRS code. Stadium bonds generally are eligible for the tax exemption by structuring the deal so that no more than 10% of its debt service is secured by interest in the stadium and no more than 10% of its proceeds are from payments derived from the stadium. That "effectively requires that a state or local government must finance the bulk of the stadium to receive the federal subsidy, and further that it must rely on tax revenue unrelated to the stadium for the financing," said the National Tax Journal.

Several sports franchises have financed projects in recent years through tax-exempt bonds. The Atlanta Falcons' $1.4 billion Mercedes-Benz Stadium, which opened in 2017, was financed in part through $200 million of tax-exempt bonds. half of the Minnesota Vikings $1 billion Vikings Stadium, which opened in 2016. In 2018, Clark County, Nevada floated $645.1 million of bonds to finance the cost of the $1.9 billion Allegiant Stadium, home of the NFL's Las Vegas Raiders. In late 2020, the county was forced to draw on bond reserves to make a debt payment.