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House bill aimed at NFL owner would end tax subsidy for sport stadium construction

Tim Shaw  

Tim Shaw  

Three House Democrats proposed legislation that would eliminate the tax-exempt status of bonds for new stadium construction in a rebuke of an NFL owner accused of sexual misconduct. Research has found that such bonds are costly and nonbeneficial to taxpayers.

House Reps. Jackie Speier, D-CA, Earl Blumenaur, D-OR, and Don Beyer, D-VA, introduced H.R. 6806, titled the No Tax Subsidies for Stadiums Act of 2022, on February 22. The bill would amend Code Sec. 103(b) by rendering interest paid on “professional stadium bonds” taxable.

As currently written, a professional stadium bond is defined as:

  • any bond issued as part of an issue any proceeds of which are used to finance or refinance capital expenditures allocable to a facility (or appurtenant real property) which, during at least 5 days during any calendar year, is used as a stadium or arena for professional sports exhibitions, games, or training.

“Since 2000, subsidies for financing professional sports stadiums have cost taxpayers $4.3 billion despite the billions of dollars in profits that NFL clubs and other professional sports team owners reap each year,” read a joint press release by the bill’s three sponsors.

Targets Washington Commanders.

Though the legislation would immediately be in effect for any future stadium bonds, the release singles out Washington Commanders Owner Dan Snyder, who is currently under investigation for sexually harassment of multiple women, including former team employees. The House Oversight Committee has pressured the NFL and Snyder to release documents from an internal review of the formerly-named Washington Football Team (WFT) conducted by Beth Wilkinson of Wilkinson Walsh LLP.

Meanwhile, as part of the organization’s recent rebranding, Snyder has been in talks with the Virginia Legislature to relocate the team and construct a “football stadium authority,” complete with a new stadium, large amphitheater, hotels, a conference center, and mixed-use retail. The project is estimated to cost $3 billion.

Animosity between Congress and the league prompted House Democrats to retaliate by undermining Snyder’s attempt to secure a bond for a new stadium. “The NFL has proven once again that it can’t play by the rules. As such, taxpayers-subsidized municipal bonds should no longer be a reward for the Washington Commanders and other teams that continue to operate workplaces that are dens of sexual harassment and sexual abuse,” Speier said.

A Speier staffer confirmed with Checkpoint that the legislation was in direct response to the ongoing Commanders investigation, but added Speier has repeatedly stated that “toxic” workplaces are “no doubt common in many NFL teams and professional sports organizations, which have also been the subject of serious and numerous allegations of racial discrimination.”

On February 4, Carolyn Maloney, D-NY, and Raja Krishnamoorthi, D-IL, wrote a letter to NFL Commissioner Rodger Goodell after the league and the Washington club entered into a common interest agreement as part of a “joint legal strategy” in which the NFL and the Commanders would only publicly disclose information if both parties mutually agreed to do so. Previously, the NFL announced that it was “taking over” the team’s internal investigation.

“The NFL must explain why a target of its investigation was given the ability to block the release of the investigation’s findings and why the NFL instructed Ms. Wilkinson to reverse course and not provide a written report,” read the letter. “Most importantly, the NFL must end its months-long efforts to hide the truth about misconduct at the WFT and cooperate with the Committee’s investigation.” Goodell was requested to produce the results of Wilkinson’s investigation, including 2,100 relevant documents.

Speier’s office is “optimistic” of the bill’s chances, “especially given President Biden’s focus on deficit reduction and offsets as a way to pay for priorities he suggested in the State of the Union. That, along with the NFL’s reprehensible behavior, put this very attractive offset very much in play.”

Amending a provision that goes back to 1913.

If passed, the legislation would put to an end a longstanding federal subsidy for new sport stadium construction. Interest payments on municipal bonds have been exempt from federal income tax since 1913, allowing state and local governments to borrow at a lower rate. Historically, this has been appealing to professional team owners.

Nongovernmental, or “private activity bonds,” can be issued for limited purposes to private entities. Conversely, governmental bonds are issued to finance public-use projects such as airports, highways, and sewer and water facilities. Several private activities are subject to a statewide volume cap on how much in private activity bond amounts can be issued in a year. Notably, stadium bonds are not subject to a volume cap.

Pursuant to the Tax Reform Act of 1986, a bond is private if it meets two tests: (1) more than 10% of the bond proceeds were to be used by a nongovernmental entity (the private business use test), and (2) more than 10% of the debt service was secured by property used directly or indirectly in a private business (the private payment test). According to a Congressional Research Service report on private activity bonds, the Tax Reform Act of 1986 “limited the exemption for some previously acceptable private activities, including construction of sports facilities.”

Yet, dozens of professional sport stadiums have been constructed using a workaround. A Brookings economic study explained that for a sport stadium bond to be tax-exempt, it “must be structured so that no more than 10% of its debt service is secured by the property used directly or indirectly by the sports franchise.” A state or local government must be willing to finance “at least 90% of the of the debt service for the bonds.” Some call this the “10% loophole.”

Because a bond issuer can’t “rely on stadium-generated revenue” like a tax on ticket sales for games, governments commonly seek tax revenue from other sources, such as “tourist” taxes on hotels and rental cars, according to the study. Other taxes, such as property or excise taxes, are also often levied.

“This issue comes down to communities being held hostage. The NFL and these other sports leagues are a money-making machine that are rich enough to build their own facilities … ” Blumenauer said.

Proponents argue that securing a new stadium is a boon to local economy, bringing in an influx of customers to nearby attractions, such as bars, restaurants, or casinos. These are referred to as “spillover gains.” However, quoting previous research, the study found that “there is no statistically significant positive correlation between sports facility construction and economic development.” Still, state and local governments have continued to court owners of professional sport teams.

Austin Drukker, Ted Gayer, and Alexander Gold, who authored the Brookings study, released a paper in the March 2020 National Tax Journal analyzing 43 stadiums constructed since 2000 that were at least partially funded by tax-exempt municipal bonds.

“Tax-exempt bonds are an economically inefficient means of providing a subsidy,” the authors concluded. The paper also arrived at the same figure cited by the bill sponsors’ press release: $4.3 billion in lost federal revenue since 2000.

For Snyder, a relocating the Commanders would coincide with the team’s new identity. FedEx Field (originally Jack Kent Cooke Stadium) in Landover, Maryland, has been its host since 1997. The stadium’s faltering condition has been exposed over the course of this past NFL season, in lockstep with reports of the organization’s work environment.

In September at Washington’s Week 1 home opener, a pipe burst, spilling what was thought to be raw sewage onto fans. The FedEx Field official Twitter account clarified that it was only “rain water,” but another leak occurred only a couple months later on November 29 during a Monday Night Football matchup against the Seattle Seahawks. On January 2, after Washington’s home loss to the Philadelphia Eagles, a barricade by the visitor tunnel collapsed, causing fans to fall several feet as Eagles Quarterback Jalen Hurts was heading to the locker room.

It has been reported that the potential new stadium locations are in Woodbridge, Dumfries, and Sterling. The first two locations, both in Prince William County, are over 30 miles south from Washington, D.C. via a heavily trafficked stretch of Interstate 95. Sterling, located in Loudoun County, is closest to the Capitol and most accessible via public transportation.

The Republican-controlled Virginia House and the Democrat-controlled Senate have both proposed their respective frameworks for issuing the Commanders up to $1 billion in tax-exempt private activity bonds. Freshly inaugurated Virginia Governor Glenn Younkin (R) has expressed support for getting the Commanders to the Commonwealth, telling AP in an interview that reaching a deal would “best reflect the interests of Virginia taxpayers …”

The sponsoring House members, however, maintain that resources should be allocated to public services instead of further enriching team owners. “Super-rich sports team owners like Dan Snyder do not need federal support to build their stadiums, and taxpayers should not be forced to fund them,” Beyer said.

 

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