In recent years, the trend in stadium financing has shifted from private funding to taxpayer subsidies for new stadium construction or renovation. Even more disturbing, nearly all new sports facilities are being built with government subsidies. The primary funding mechanisms for these stadiums are tax-exempt municipal bonds. According to a 2015 Bloomberg article, tax-free bonds used to finance stadiums costs the U.S. Treasury $146 million per year. From 1986 to 2015, $17 billion in tax-exempt debt was used to finance stadium projects at a cost of $4 billion to taxpayers.
Congress attempted to slow this trend with the Tax Reform Act of 1986, which prohibits direct stadium revenue from being used to secure public financing for more than 10 percent of the cost of a stadium. Ending the use of these bonds for stadium construction is one path states can follow to slow the proliferation of these projects.
In Florida, a new bill has been introduced, House Bill 1369, that attempts to decrease the use of taxpayer dollars for stadiums by scaling back the control that Florida counties have in funding professional sports facility projects. The bill would bar counties from using revenue from tourism-development (hotel/motel) and convention-development taxes to pay off the bonds used to fund the construction or renovation of new or existing sports venues for professional sports franchises. Such a law is important in Florida due to the prevalence of Major League Baseball spring training teams and facilities in the state alongside the professional teams in other leagues. In early February, the bill was approved by the House Ways & Means Committee.
Despite the prestige professional sports brings to cities, publicly funded stadiums remain a bad deal for taxpayers, and these projects are now receiving more tax dollars than ever before. In her book on sports stadium financing, Public/Private Partnerships for Major League Sports Facilities, Judith Grant Long, an urban planning expert at Harvard University, notes the average public cost for a new facility has increased dramatically since 2000. In the 1990s, the average tax subsidy given to stadium projects was $142 million. However, by 2010, the average public cost had risen to $241 million, a 70 percent increase.
Long also points out, as noted in Bloomberg, the tax subsidies may be even higher than reported, as economists underestimate costs associated with stadium projects, such as infrastructure upgrades, capital improvements, municipal services like police security, and lost property taxes. Taking these added (and often hidden) costs into account, Long estimates the average taxpayer subsidy for sports facilities could increase by 25 percent, raising the 2010 average cost to $259 million per facility.
Supporters of taxpayer funding for stadiums have long claimed the new facilities act as engines of economic development, but several economic studies have found their influence to be limited. In a Reason Public Policy Institute report, Samuel Staley and Leonard Gilroy note the majority of research on the economic effects of stadium construction has found no link between the new facilities and job or income growth. Roger Noll, an economist who studies sports-stadium subsidies at Stanford University is even more direct, telling the Economist that he has never witnessed the construction of a football stadium that has had a significant positive impact on the local economy.
Stadium subsides have not created the local impact that they promised, creating a situation where the costs of new facilities are borne by taxpayers, but the profits kept by private owners. According to a 2017 poll, 83 percent of the economists surveyed agreed that “Providing state and local subsidies to build stadiums for professional sports teams is likely to cost the relevant taxpayers more than any local economic benefits that are generated.”
Another option for Florida lawmakers is an interstate compact being considered in several states that explicitly prohibits the “use of taxpayer dollars for private professional sports stadiums and facilities.” A good example of a compact bill was introduced in Arizona. Under Arizona’s proposed compact, if similar legislation is passed and ratified by 24 other states, the appropriation of government money for “the construction, maintenance, promotion or operation of a professional sports stadium” would be prohibited. The bill specifically includes bans on “direct funding, tax credit, tax exemption, government bond, loan, loan guarantee or any other funding mechanism that comes from state or local government.”
Stadium subsidies are a poor use of taxpayer dollars. They rarely realize the benefits their supporters claim and shift tax revenue away from where it can be better utilized.
The following documents examine taxpayer funded stadium financing in greater detail.
The Economics of Subsidizing Sports Stadiums
Scott Wolla write for the Federal Reserve Bank of St. Louis about stadium spending, subsidies and how many economists disagree that these projects have positive economic impacts.
The Economic Impact and Civic Pride of Sports Teams and Mega-Events: Do the Public and Professionals Agree?
Peter A. Groothuis and Kurt W. Rotthoff survey residents and economists about the alleged benefits—both to a city’s economy and to civic pride—of mega-events and sports teams. The authors’ results find like “economists, the public is skeptical that public funding of mega events is a good idea.”
Nevada Lawmakers Consider Wooing Sports Team with Taxpayer Subsidies
Michael Bates writes in Budget & Tax News about recent efforts made by the Oakland Raiders to relocate to Las Vegas to play in a new taxpayer-funded stadium.
Sports Stadium Madness: Is Fan Ownership the Answer?
In this Policy Brief from The Heartland Institute, a free-market think tank whose researchers have questioned government subsidies to sports stadiums since the mid-1980s, the author proposes fan ownership of teams as a solution to “sports stadium madness.”
Sports Stadium Madness: Why It Started, How to Stop It
Taxpayer subsidies to professional sports teams amount to some $500 million a year. The decision to subsidize a team is driven by competition among cities for a limited number of teams, league policies that reward relocation, and lobbying by special-interest groups. The solution is for fans and taxpayers to campaign for nonprofit ownership of teams, a model pioneered by the NFL’s Green Bay Packers in 1923.
Is There an Economic Rationale for Subsidizing Sports Stadiums?
Robert A. Baade discusses whether subsidizing sports facilities makes economic sense for municipalities.
Government-Funded Stadiums Not Worth Price of Admission
Cato Institute Senior Fellow Doug Bandow examines stadium subsidies and their supposed benefits and concludes city officials across the nation should welcome major league sports teams only if they are willing to pay their own way.
Why Stadium Subsidies Always Win
Nick Gillespie of Reason interviews J.C. Bradbury, the author of several books on baseball and economics, about the economics of publicly subsidized sports stadiums. A video of this interview is available here.
Take Me Out of the Ball Game: the Efficacy of Public Subsidies in the Success of Professional Sports Stadiums
This paper weighs the relative advantages of multiple factors that lead to the success of professional sports stadiums in major markets, discussing the arguments for and against public subsidies. The analysis demonstrates public subsidies for stadiums don’t generate sufficient economic returns, and that successful stadiums can be built without using taxpayer funds.
Sports and the City: How to Curb Professional Sports Teams’ Demands for Free Public Stadiums
Writing in the Rutgers Journal of Law and Public Policy, Marc Edelman argues for a national law that would protect local communities from sports leagues’ demands for publicly funded stadiums, by requiring pro-rata revenue sharing according to the share of construction costs paid.
The Stadium Gambit and Local Economic Development
Sports franchises frequently use their monopoly power to extract rents from state and local governments. Local officials and their hired consultants tout economic benefits of publicly subsidized stadia, but the consensus of academic economists is that such policies do not raise local incomes. This article describes even more pessimistic results, indicating sports facility subsidies may actually reduce the incomes of the alleged beneficiaries.
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