Saturday, February 28, 2015

A new push to end use of tax-exempt federal support for sports facilities

I'm just catching up on how the worm is just starting to turn, regarding how federal taxpayers help build new sports facilities and fuel owners' profits.

From Think Progress on 2/4/15. With Obama Budget, Your Federal Tax Dollars Won’t Pay For Sports Stadiums:
President Obama’s most recent budget proposal takes aim at a tax exemption that has helped drive an explosion in publicly-financed sports facilities across the United States, a move that would end federal taxpayers’ role in subsidizing the construction of stadiums and arenas that often provide little economic benefit to their cities and states.
As it stands now, cities and states can help pay for stadiums by accessing tax-free government bonds that have below-market interest rates subsidized by the federal government. The budget Obama released Monday, however, repeals the tax-exemption from the bonds that finance sports facilities if more than 10 percent of the arena or stadium is dedicated to private business use.
Because almost all professional sports stadiums and arenas would fail that test, the Obama proposal would virtually eliminate a tax exemption that provides millions of dollars in federal subsidies each year to sports facilities. States and cities would instead have to finance stadiums with bonds that are not tax-exempt, raising the cost of an already pricey endeavor in a way that could affect the way lawmakers and local taxpayers view the deals.
“Perfect. You couldn’t do it any better if you believe like I do that we should not finance these things with tax-exempt debt,” said Dennis Zimmerman, a retired economist who worked for the Congressional Research Service and Congressional Budget Office and now serves as the director of projects for the American Tax Policy Institute. In a 1996 paper for CRS and in other publications, Zimmerman examined the tax exemption on government bonds used for sports facilities and recommended eliminating it.
NYC Independent Budget Office
ThinkProgress suggested that the exemption likely will survive the Republican-controlled Congress, but the president’s proposal could push it toward passage another time.

Not the same as NYC funding

Note that this is not the similar tax exemption, allowing payments in lieu of taxes (PILOTs), that enabled construction of new stadiums for Yankees and Mets, and the Barclays Center.

That tax exemption was eliminated in 2008 but grandfathered in for the arena.

The New York City Independent Budget Office in 2009 estimated some $200 million in public costs given the tax-exempt financing.

That was likely overstated by some $50 million, given that it was based on $678 million in tax-exempt bonds, rather than the $511 million ultimately sold.

More discussion

Neil deMause followed up on Field of Schemes:
Since stadiums and arenas are almost by definition used for private events more than 10% of the time, sports team owners immediately made sure that they wouldn’t get caught in this trap by focusing on the other test, and ensuring that at least 90% of bond costs would be paid off by generally applicable taxes. This required jumping through some fancy hoops at times — sometimes dividing up bond issuances into one publicly paid tax-exempt set and one privately paid taxable set, sometimes pretending that private rent payments are really tax payments and convincing the IRS to go along with it — but has consistently worked out over the years, so far costing taxpayers $4 billion in foregone tax revenue.
The Washington Post's Wonkblog, 2/5/15, It’s time to stop letting sports team owners blackmail taxpayers for new stadiums:
"It's a silly tax break," said Matt Gardner, director of the Institute on Taxation and Economic Policy [a non-partisan research organization]. "It's ludicrous that the federal government would be subsidizing state and local borrowing to give investors tax breaks to make it easier for them to build sports stadiums."
...Dennis Zimmerman, the director of projects at the American Tax Policy Institute, made a similar suggestion in a report 19 years ago. ["Tax-Exempt Bonds and the Economics of Professional Sports Stadiums," Congressional Research Service, May 1996] "I'm pleased," he said. "And I don't think it stands a snowball's chance in hell."
The hearkens back to a 9/5/12 article from Bloomberg, In Stadium Building Spree, U.S. Taxpayers Lose $4 Billion:
Tax exemptions on interest paid by muni bonds that were issued for sports structures cost the U.S. Treasury $146 million a year, based on data compiled by Bloomberg on 2,700 securities. Over the life of the $17 billion of exempt debt issued to build stadiums since 1986, the last of which matures in 2047, taxpayer subsidies to bondholders will total $4 billion, the data show.
Those estimates are based on what the Treasury could have collected on interest from the same amount of taxable bonds sold at the same time to investors in the 25 percent income-tax bracket, the rate many government agencies assume. In fact, more than half the owners of tax-exempt bonds pay top rates of at least 30 percent, according to the Congressional Budget Office. So they save even more on their income taxes, a system that U.S. lawmakers of both parties and President Barack Obama have described as inefficient and unfair.
...The new generation of publicly owned stadiums was designed to increase revenue from high-priced seating as well as concessions and retailing. The venues have helped double the value of sports franchises since 2000, according to W.R. Hambrecht & Co., a financial services firm.
That article reflects on the attempt at reform:
Almost 20 years earlier, U.S. lawmakers from both parties set out to block muni bonds for municipally financed stadiums as part of an attack on public borrowing for private businesses, according to former Senator Bob Packwood, the Oregon Republican who was chairman of the Senate Finance Committee.
“We wanted to limit it,” Packwood said in an interview. “It was one of the most egregious uses of the part of the tax code that allowed for industrial development bonds. It was clearly not what the tax code had in mind when tax-exempt bonds were authorized.”
...The wording of the law encourages cities and states to offer more-favorable terms to pro teams wanting financial assistance while preventing the borrowers from using stadium revenue to pay off the bonds, he wrote. The measure functions as “an open-ended matching grant” for stadiums, he said. Cities and states borrowed more money backed by tax revenue, not less, to make sure that no more than 10 percent of a stadium’s debt payments came from a private business, Zimmerman said.
...Not all of the subsidy goes to the city, based on a 2009 report from the Congressional Budget Office and the Joint Committee on Taxation. Researchers found that just 80 percent of the amount the Treasury gives up because of the exemption serves to reduce a municipality’s borrowing costs. The remaining 20 percent amounts to “a federal transfer to bondholders in the higher tax brackets,” according to the report...That’s because people paying the top marginal rate get a disproportionate benefit from the exemption.
The AY angle

As I wrote in 2008, Forest City Ratner's hired economist, Andrew Zimbalist, ignored the federal subsidy in his 2004 report for the developer.

He would've had to quote his own, recently stated opposition to tax-exempt bonds for sports facilities. In his 2003 book, May the Best Team Win: Baseball Economics and Public Policy, he wrote (p. 140-141):
While one may legitimately question the costs and benefits to a particular metropolitan area of attracting a professional sports team, there appears to be no rationale whatsoever for the federal government to subsidize the financial tug-of-war among the cities to host ball clubs. If there is a global welfare gain from the relocation of a team from city A to city B (because city B may be larger or wealthier or have more avid sports fans), then city B ought to able to pay for that gain without a subvention from Washington, D.C.

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