A bill to prevent the tax-exempt financing of professional sports stadiums may not stand much of a chance on its own, but the bill might realistically be rolled into a wider tax package with much more serious implications for the municipal bond market.
“I see enough of these bills proposed on a standalone basis,” said Rich Moore, tax partner at Orrick, Herrington & Sutcliffe. “I always think the importance of seeing a bill on a standalone basis is that it is not so much that the bill will pass on a standalone basis. The much more likely reality is that it means it might be part and parcel of the next larger bill that passes.”
The No Tax Subsidies for Stadiums Act of 2022, introduced by Rep. Jackie Speier, D-Calif., Rep. Earl Blumenauer, D-Ore., and Rep. Don Breyer, D-Va., depending on how discussions land in the coming weeks, could be integrated into some of the provisions that were left behind in the Build Back Better bill.
“Technically, it's a tax title and we know what happened to all the tax titles in Build Back Better,” said Emily Brock, director of the federal liaison center at the Government Finance Officers Association.
If there is any kind of motivation to revive some of these previous Build Back Better Bill discussions in the coming months, it would likely become part of that, Brock said.
The issue of prohibiting the use of tax-exempt private activity bonds for the financing of sports stadiums has become a recurring hot-button issue in recent years. In 2014, Sen. Tom Coburn, R-Okla. called for a ban on federal tax-exempt financing for sports stadiums and in his 2016 and 2017 fiscal budgets, President Obama proposed prohibiting tax-exempt bonds from being used for financing private sports facilities by eliminating the private payment test, to no avail.
The issue was revived again during negotiations for The Tax Cuts and Jobs Act, where its inclusion in the final Senate bill was cut, but the elimination of advance refunding was left in, leaving some muni market advocates bewildered.
“We were a little baffled,” Brock said. “One could probably presume there were NFL commissioners that were probably playing a role while the rest of us were lobbying for other things [like advance refunding].”
The bill is being viewed as more of a political move by its authors ahead of the November midterm election. They are also framing the issue within a social context, saying that the billionaire team owners don’t deserve tax exemptions.
“It doesn’t make economic sense, and it’s particularly galling given the league’s longstanding failure to address issues of sexual harassment and sexual assault as well as ongoing racial and gender discrimination and domestic violence,” Speier said in the announcement of the bill.
That appears to some as a direct plea to voters. “What does that have to do with tax exemption?” said Susannah Page, senior vice president and manager of research at Roosevelt & Cross. “They're populist, they are against the billionaires and they're trying to make a point,” she added. “Definitely political.”
Several sports franchises have financed projects in recent years through tax-exempt bonds. The Atlanta Falcons' $1.4 billion Mercedes-Benz Stadium was financed in part through $200 million of tax exempt bonds, half of the $1.2 billion used to finance the Dallas Cowboys' AT&T Stadium was done through tax-free bonds as well as half of the Minnesota Vikings $1 billion Vikings Stadium.
Of the 57 stadiums built since 2000, 43 of them were at least in part financed by tax-exempt municipal bonds, according to a March 2020 report by the National Tax Journal.
But stadium bonds make up a small portion of municipal bond issuances and if passed, the market will likely get around it with not much of an effect on issuances.
“Stadium bonds are a very minimal portion of the tax exempt bond market,” Moore said. “If Congress is worked up and bothered by this then it's putting a target on the municipal bond industry,” Moore said. “Maybe there are worse things to lose.”
But if the only way to finance sports stadiums were through taxable bonds, then the costs may be shifted to other participants in the market.
“If stadium projects are required to do taxable financing, that costs more,” said Dave Erdman, capital finance director for the State of Wisconsin. “Costs are going to be passed on either to taxpayers, or costs are going to be passed on to fans.”
“Those additional costs might cause the project scope to be changed and with a project scope changing, or a project not happening at all, you lose that opportunity to have other resulting development that comes with stadium projects,” Erdman said.
But those funds could also be directed in a different direction, should a municipality choose not to go ahead with a stadium project.
“There are short-term construction jobs that are created [with a stadium financing],” Page said. “If you build a hospital or affordable housing project, they would have created construction jobs, too, so it's not necessarily exclusive to the stadium.”
Like when advance refunding was eliminated as a taxable item as part of the Tax Cuts and Jobs Act, the market adapted and began to issue taxable advance refunding deals.
“I'm guessing they might even be more popular because it’s a different audience,” Page said. “You’ve got the taxable buyers, and crossover investors,” she said. “Stadium deals are a decent size and can be very big so that they might be of more interest to a wider audience.
"I think it would not be that much of an issue for us,” she added.
But whether this will become part of a larger bill or whether this will be part of a larger tax measure will be decided in upcoming discussions, Brock said.
