Congress Should Do More Than Block Tax-Exempt Bonds For Pro Sports Stadiums – Forbes

LANDOVER, MD – SEPTEMBER 13: Field view of the Washington Football Team logo during the game between … [+] the Washington Football Team and the Philadelphia Eagles on September 13, 2020 at FedEx Field in Landover, MD. (Photo by Andy Lewis/Icon Sportswire via Getty Images)

Icon Sportswire via Getty Images

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 foolish waste of taxpayer money. But an attempt by three Democratic Members of Congress to block the funding scheme 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 of bonds used to finance professional sports stadiums.

That’s fine as far as it goes. But rather than aiming only at pro sports (and really at Snyder), Congress should completely rethink private activity bonds. 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 taxpayer money to subsidize any well-connected businesses to the detriment of competitors that don’t have the clout to get cut-rate bond financing?

What are private activity bonds?

Private activity (aka private purpose) bonds usually are issued through a quasi-government entity such as a housing or economic development authority. About two-thirds of these bonds are for 501(c)(3) non-profits, such as hospitals. The rest finance projects run by for-profit businesses. Like other state and local government bonds, the interest they pay is tax-free to investors. But the proceeds go to the private entities and the money to repay the bonds comes from the project being financed rather than general tax revenues.

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

The benefit to the developers is clear: Lower cost financing means the potential for greater returns. The benefit to the local communities is much less certain. And it is hard to find any benefit at all to the federal taxpayers who are subsidizing the low-cost bonds.

A checkered history

The history of these bonds has been checkered at best. Congress first tried to get a handle on them in 1968. The 1986 Tax Reform Act capped the amount of private activity bonds a state could issue at $50 per resident up 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, the types of qualifying projects have been expanded, and facilities in certain communities or for designated purposes have been granted higher limits. Other activities are now completely exempt from the state caps , though they are subject to a separate national limit.

In 2017, the GOP-controlled House voted to fully repeal the tax-exemption for private purpose bonds. But that idea swiftly died in the Senate.

Years ago, the Joint Committee on Taxation identified the problems with these bonds: They inefficiently allocate capital, raise the cost of financing traditional governmental activities, help higher-income investors avoid taxes, and reduce federal revenues.

One target

The current stadium bill is not a serious effort to curb the use of these bonds. Rather the sponsors make no secret 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 team’s name from one offensive to many. And he is a big giver to Republican political causes who donated more than $1 million to Donald Trump’s 2017 inaugural committee.

That may make him odious to many Democrats. But using tax laws to punish political enemies is not acceptable, whether it is directly raising their taxes or ending their subsidies.

No doubt, sports stadiums have needlessly benefited from tax-exempt bonds. A Brookings Institution study found that from 2000 to 2016, 80 percent of new professional sports facilities were funded at least in part by these bonds, with a present-value subsidy in the neighborhood of $3 billion.

Revisit the idea

By all means, end this use of tax-exempt bonds. But why stop at professional sports facilities? Besides, a limited law like this one would have bizarre consequences. While a pro team could not use tax-exempt bond proceeds to build a stadium, universities still could build palaces for their football or basketball teams, which are amateur in name only. Sports stadiums would be barred from tax-exempt bond financing but big outdoor venues for pop concerts would not.

Virginia’s pending give-away to the Commanders would be just the latest in a long list of unjustified government subsidies to highly profitable businesses. But Congress should use it as an opportunity to revisit the entire practice of private activity bonds, not just to punish the owner of one football team.