WASHINGTON – Republican Rep. Steve Russell from Oklahoma has introduced a bill that would treat bonds used to finance professional sports stadiums as taxable private activity bonds if they met just one part of the existing two-part test for PABs.
The "No Tax Subsidies for Stadiums Act," (H.R. 811), introduced by Russell on Feb. 1, has the same intent but takes a different approach to the bill with the same name that he offered last March (H.R. 4838). The bill last year prohibited the use of governmental bonds to finance for-profit sports stadiums and entertainment arenas. Russell's more recent bill is in line with President Obama's proposal in his fiscal year 2017 budget request to narrow the PAB test for sports stadium bonds so that only taxable PABs and not tax-exempt governmental bonds could be used for stadiums.
Under the tax law, bonds are PABs if more than 10% of the bond proceeds are used by private parties and if debt service on more than more than 10% of the bond proceeds is secured by, or derived from, private parties. Once the two-part test has been met, PABs are only tax-exempt if they fall within one of several specified categories, none of which cover professional sports facilities.
Typically sports stadiums can be financed with tax-exempt governmental bonds because, while the bonds meet the 10% private use test, they fail the 10% private payments test when the debt is repaid from generally applicable taxes rather than private parties. If the private payments test was removed, sports stadium bonds would become PABs and would then be taxable because there is no tax-exempt PAB category for sports stadiums.
H.R. 811 defines professional sports stadiums as any facility and related property which, during at least five days of any calendar year, is used as a stadium or arena for professional sports exhibitions, games or training."
That's much narrower than in the previous bill, which focused on bonds used to finance "professional entertainment facilities" defined as stadiums or arenas for professional sports exhibitions, games or training or venues for any entertainment events where the audiences exceeds 100 individuals and the net earnings benefit anyone or any entity other than a political subdivision.
H.R. 811 is co-sponsored by Reps. Mark Meadows, R-N.C. as well as Earl Blumenthal, D-Ore. who sits on the House Ways and Means Committee. Russell is not a member of the tax committee. He sits on the House Government Oversight and Reform and House Armed Services Committees.
Russell said in a statement issued last March when he introduced his first bill against stadium financing that the Office of Management and Budget had estimated that prohibiting tax-exempt financing for stadiums would lower the budget deficit by a total of $542 million over the next decade.
Randy Gerardes, a senior analyst at Wells Fargo Securities, released a paper last week just before Super Bowl LI that noted the public is increasingly pushing back against providing public funding for big sports stadiums. Most recently, voters in San Diego County opposed increasing the city's hotel tax rate to finance up to $1.1 billion of a proposed $1.8 billion new stadium and convention center for the Chargers, he said.
The six-page commentary contained a chart showing that since 2000 tax-exempt support for National Football League stadiums has declined.
Brookings Institution released a study last September recommending that tax-exempt financing be prohibited or restricted for stadium financing. The study claimed that professional sports stadiums built or renovated with tax-exempt bonds during the last 16 years have cost the federal government $3.7 billion.
The study said the federal government subsidized the stadiums to the tune of $3.2 billion and then suffered additional revenue losses of $500 million from wealthy bondholders.
But sports professionals and municipal bond market participants criticized the study for not taking into account the economic development that has occurred in areas surrounding some professional sports stadiums.
