The tax reform bill unveiled this week by House Republicans would do away with the federal tax exemption for municipal bonds, commonly claimed by states and cities to subsidize the construction of stadiums.
The National Football League is gearing up big time to lobby against it, The Wall Street Journal reported this week.
Municipal bonds were made tax exempt in 1986 as a way to encourage investors to buy them at lower interest rates, saving cities money when they need to build new infrastructure or make expensive repairs. While the bonds are designed for building roads, sewer systems, and schools, cities have issued more than $13 billion in untaxed bonds for stadium projects since 2000, according to a recent Brookings Institute estimate.
That tax break is "an unseen subsidy," according to Victor Matheson, a sports economist at the College of the Holy Cross, who is critical of using public money for stadiums. "It's a tax break that we never get to vote on, and it's one that don't even think about and don't see," he told Reason in June.
There's bipartisan support for directing the exemption specifically for public infrastructure, rather than multi-billion dollar playgrounds for multi-millionaire athletes and billionaire franchise owners. Sens. Cory Booker (D–N.J.) and James Lankford (R–Okla.) in June introduced an independent piece of legislation to prohibit local officials from using municipal bonds for stadium projects.
If that prohibition becomes law—either on its own or as part of a revamped federal tax code—those "unseen subsidies" would go away and the cost of those projects would increase. So, too, would public opposition to spending public money on stadiums.
"It's something that the NFL will oppose because we believe that the construction of new stadiums and renovations of stadiums are economic drivers in local communities," NFL spokesman Joe Lockhart tells the Journal's Andrew Beaton.
The 32 team owners who make up "the NFL" in this context are allowed to believe whatever they want, but the idea that new stadiums or renovations are economic drivers is not supported by facts. A landmark study published in 2000 by the Journal of Economic Perspectives reviewed 36 major metropolitan areas that had built stadiums for professional sports teams and found that, on the whole, they represented a drag on the economy.
More recently, a 2015 study by the Stanford Institute for Economic Policy Research, found that "NFL stadiums do not generate significant local economic growth, and the incremental tax revenue is not sufficient to cover any significant financial contribution by the city."
Local governments, however, continue to put taxpayers on the hook for football stadiums. In his book The King of Sports: Football's Impact on America, Gregg Easterbrook, a journalist and longtime critic of taxpayer subsidies for the sport, says taxpayers have covered more than 70 percent of the total cost of NFL stadiums built in the past two decades.
Maybe we're heading toward the end of that tradition. President Donald Trump, in between tweeting criticisms of NFL players kneeling during the national anthem to protest police abuse, has whacked the NFL for taking advantage of special loopholes in the tax code.
"Why is the NFL getting massive tax breaks while at the same time disrespecting our Anthem, Flag and Country? Change tax law!" Trump tweeted in October.
Why is the NFL getting massive tax breaks while at the same time disrespecting our Anthem, Flag and Country? Change tax law!
— Donald J. Trump (@realDonaldTrump) October 10, 2017
President Barack Obama proposed eliminating tax exemptions for municipal bonds attached to stadium projects as part of his 2015 budget plan, but Congress didn't bite. Maybe, as part of a comprehensive tax reform bill, that component has a better chance of reaching Trump's desk.
For decades, the NFL operated as a tax-exempt entity—insert joke here about football being a religion in much of America—because it was technically registered as a nonprofit. It got nonprofit status from the IRS during World War II, even though no one seemed to know exactly what the league's "nonprofit mission" actually was, because (and this is true) the IRS said it had misplaced the NFL's application and the NFL said it, too, had lost those records.
The loophole for municipal bonds is also kind of an accident, created in the 1980s when Congress voted to close a previous loophole for federal tax-exempt private revenue bonds that had been used to fund stadium projects. Local governments simply turned to tax-exempt municipal bonds instead, as Patrick Hruby of Vice Sports has pointed out.
The league voluntarily gave up its nonprofit tax status in 2015, partially because the special tax status required the league to disclose how much it was paying top executives, but mostly as a public relations maneuver.
When it comes to get subsidies for new stadiums, though, don't expect the crony capitalist NFL give up that easily.