State and local governments spend significant amounts of money building, operating, and ongoing maintenance of sports stadiums and arenas. According to recent estimates from sports economists, “From 1970 to 2020, state and local governments spent $33 billion in public funds in the construction of major league sports stadiums and arenas in the United States and Canada; Median funding covered 73 percent of venue construction costs. ” In other words, taxpayers have covered nearly three-quarters of the cost of new publicly funded sports venues over the past 50 years.
Public interest in funding sports stadiums is at its peak. A complete list of future sports stadium subsidies that are being publicly discussed can be found below. These do not include public spending on new construction related to the U.S. hosting the 2028 Summer Olympics in Los Angeles and the 2034 Winter Olympics in Salt Lake City.
Tax Fund Stadium Subsidy
To pay for stadium subsidies, state and local governments need revenue. While various approaches have been used to generate the revenue needed to cover stadium subsidy costs, new A similar public financing blueprint of introducing taxes is followed in most cases.
Stadium subsidies and associated costs (roads, utilities, and other infrastructure that support the stadium) require upfront payment. To cover these costs, state and local governments issue bonds and agree to repay the debt over a period of time, usually 10 years or more.
As with mortgages and other forms of consumer loans, the longer you repay your debt, the lower your annual payments will be, but the higher your overall costs will be. Additionally, if the period is long enough, the bond may not pay off when a team comes asking for a new stadium. When Giants Stadium was demolished in 2010 to make way for the replacement MetLife Stadium, it was left with more than $100 million in bonds.
State and local bonds are taxes. Taxes are mandatory payments or charges that local, state, and national governments collect from individuals or businesses to defray the cost of common government services, goods, and activities. -Bondholders are generally exempt from federal income taxes, which is a favorable investment. This means that the federal government also partially subsidizes the construction of these sports stadiums. A study published in the National Tax Journal estimated that federal subsidies (tax-exempt) for 57 stadiums built between 2000 and 2020 were $4.3 billion.
The Tax Reform Act (TRA) of 1986 sought to end the use of tax-exempt municipal bonds to finance private investment projects. The TRA applies to local governments if more than 10 percent of the funded project is used by non-governmental entities (private use test) or if more than 10 percent of the debt service is secured by assets used by private companies. Classified the bond as taxable (private payment test). Local governments quickly realized that they could pass both tests by modifying their debt financing to primarily cover the public infrastructure (roads, public facilities, etc.) associated with stadium construction, but not the private stadium itself. was not directly spent. In that case, the local authority would avoid the TRA restrictions by securing no more than 10 per cent of the stadium’s debt and relying instead on alternative funding sources.
In order to pay the new annual debt service by issuing bonds, the bond-issuing government needs to combine new sources of revenue with the diversion of expenditures from other sources. Policymakers have introduced a variety of taxes, most commonly a combination of localized sales tax increases and new or higher excise taxes on tourism-related industries.
For example, voters in Arlington, Texas, voted to implement a half-cent sales tax. Sales taxes are levied on retail sales of goods and services and ideally should apply to all final consumption with few exemptions. Many governments exempt goods such as groceries. Expanding the base to include food items could keep interest rates low. Sales tax should exempt business-to-business transactions that, if levied, would trigger a tax pyramid. In 2004, they increased a 2% hotel occupancy tax, a 5% rental car tax to fund the Cowboys’ stadium, and in 2016 they increased those taxes to fund the Rangers’ stadium. It was extended.
The Milwaukee Brewers’ stadium subsidy was funded by an additional 0.1 percent special sales tax in five Milwaukee-area counties. The tax lasted 23 years before expiring in 2020. In 2023, the state approved an additional $386.5 million in stadium renovation funds, including $135 million from the City of Milwaukee and Milwaukee County. Subsidies will come from ticket taxes and general funds.
Are sports stadium subsidies worth public investment?
A recent literature review examined stadium construction over the past 50 years. The authors found that the promised tangible economic benefits (economic growth, increased incomes, increased wages, increased employment, increased tax revenue) did not occur in the ways sports teams claimed. . Economic benefits often occur only near the stadium and are far below expectations. State and city governments subsidize development within a single district without providing any tangible benefits to other parts of the city or state.
Funding comes from across the state and city, and only a small portion of the population benefits, so stadium grants are used to fund abandoned facilities such as first responder equipment, parks, parks, etc. They often impose an invisible tax burden on consumers in the form of public services. public transport. The opportunity costs of these expenditures are huge, and economists and opponents of stadium subsidies argue that what can be done with $33 billion in state and local funds earmarked for professional sports teams between 1970 and 2020? I often wonder if I could have done it.
For stadium subsidies to provide a net positive benefit to taxpayers, the intangible benefits must exceed the cost of the subsidy. And there are some intangible benefits to the existence of professional sports teams. In American culture, sports are valued more than their economic impact would suggest. These can provide significant consumer benefits for at-home viewers and create a sense of pride in the city surrounding the team. But when researchers surveyed residents about their willingness to pay for these amenities, the results suggest that stadium subsidies are still too high.
Policy makers are influenced by sports teams who claim that their current investments will yield significant economic returns. Sports teams often solicit bids from multiple states for the highest level of subsidies among a myriad of states. State and local policymakers are competing for teams, resulting in increased subsidies offered by both the cities where teams are currently based and the cities they hope to persuade to relocate.
Given that stadium subsidies fail cost-benefit analyses, why do state and local policymakers continue to provide large tax-funded subsidies to professional sports teams? The answer lies in the fundamental political motivation to prioritize re-election over other interests, even when those interests align with good governance or sound taxation.
Subsidizing sports stadiums is a prominent political gimmick designed to make it appear as if politicians are providing tangible benefits to taxpayers. Elected officials also fear retribution from voters if the team moves. And the recent moves of the NFL’s St. Louis Rams to Los Angeles in 2016, the San Diego Chargers to Los Angeles in 2017, and the Oakland Raiders to Las Vegas in 2020 show that the threat of relocation is real. are.
The solution to the “economic war between the states” is mutual cooperation and an agreement in which the states do not subsidize stadiums. A similar result could be achieved by federal legislation prohibiting such subsidies.
Empirical evidence repeatedly shows that stadium subsidies fail to generate new tax revenues, new jobs, or attract new business. Attending a sporting event or concert in a new venue that is publicly subsidized may benefit the team’s fans and those who attend the event, but these subsidies would not be possible without the new venue. Shifting expenditures that would otherwise have been incurred in other parts of the city or state. sports stadium or arena.
Cooperation between potentially subsidy-providing jurisdictions and a commitment to fiscal discipline can help end the subsidy cycle. Rather than resisting the temptation to subsidize new stadiums as an easy economic and political solution, policymakers should follow sound tax policy principles as they seek to grow state and local economies. be.
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