Congress should do more than block tax-exempt bonds for professional sports stadiums

Congress should do more than block tax-exempt bonds for professional sports stadiums

Virginia’s efforts to subsidize a stadium and mixed-use commercial development for Dan Snyder and his Washington Commanders NFL football team would be a senseless waste of taxpayer dollars. But an attempt by three Democratic members of Congress to block the funding program is misguided and short-sighted.

The bill, introduced by Representatives Jackie Speier (D-CA), Earl Blumenauer (D-OR) and Don Beyer (D-VA) would end the tax-exempt status bonds intended to finance professional sports stadiums.

That’s fine as far as it goes. But rather than just targeting professional sports (and really Snyder), Congress should completely rethink private activity requirements. Should they be reserved only for public infrastructure, such as roads, bridges and public schools? What about non-profit hospitals? Should Congress impose meaningful caps on the annual issuance of these bonds? Why should state and local governments use taxpayers’ money to subsidize well-connected businesses at the expense of competitors who lack the power to obtain cut-rate bond financing?

What is a private activity guarantee?

Private activity (aka private purpose) bonds are typically issued by a quasi-governmental entity such as a housing or economic development authority. About two-thirds of those bonds go to 501(c)(3) nonprofit organizations, such as hospitals. The rest funds projects run by for-profit companies. Like other state and local government bonds, the interest they pay is tax-free for investors. But the proceeds go to private entities and the money to repay the bonds comes from the funded project rather than general tax revenue.

the The Congressional Research Service calculates that there are 30 different qualified uses for these bonds, from hospitals to high-end retirement communities, manufacturing plants, commercial developments and, yes, sports stadiums.

The advantage for promoters is clear: lower cost financing means the potential for higher returns. The benefit for local communities is much less certain. And it’s hard to find any benefit to federal taxpayers subsidizing low-cost bonds.

A turbulent history

The history of these bonds has been checkered at best. Congress first tried to rein them in 1968. The Tax Reform Act of 1986 capped the amount of private activity bonds a state could issue at $50 per resident to a maximum of $150 million. . But annual state volume caps have increased to $110 per capita, up to $335 million. And in a classic example of mission creep, eligible project types were expanded and facilities in certain communities or for designated purposes were granted higher limits. Other activities are now completely exempt from state limits, although they are subject to a separate national limit.

In 2017, the GOP-controlled House voted to completely repeal the tax exemption for private-use bonds. But this idea quickly death in the Senate.

Years ago, the Joint committee on taxation identified the problems with these bonds: they inefficiently allocate capital, increase the cost of financing traditional government activities, help high-income investors avoid taxes, and reduce federal revenue.

A target

The current Stadium Bill is not a serious effort to limit the use of these bonds. Rather the the sponsors do not hide of their real target: Commanders owner Dan Snyder, who has offended these lawmakers in multiple ways. He refused to provide Congress with a report on alleged team-related sexual misconduct. He refused for years to change the name of the team of a multiplayer attack. And he’s a big donor to Republican political causes that donated over a million dollars at Donald Trump’s inaugural committee in 2017.

This may make him odious to many Democrats. But using tax laws to punish political enemies is not acceptable, whether to directly raise their taxes or end their subsidies.

There is no doubt that sports stadiums have unnecessarily benefited from tax-exempt obligations. A Brookings Institution study found that from 2000 to 2016, 80% of new professional sports facilities were funded at least in part by these bonds, with a present value subsidy of around $3 billion.

Revisit the idea

By all means, end this use of tax-exempt bonds. But why stop at professional sports facilities? Moreover, a limited law like this would have bizarre consequences. While a professional team couldn’t use the proceeds from the tax-exempt bonds to build a stadium, universities could still build palaces for their football or basketball teams, which only have amateurs on the name. Sports stadiums would be banned from tax-exempt bond funding, but not large outdoor venues for pop concerts.

Virginia’s pending gift to commanders would be just the latest in a long line of unwarranted government subsidies to highly profitable companies. But Congress should take the opportunity to review the whole practice of private activity obligations, not just to punish the owner of a football team.