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Posted Sep 7, 2012, 3:21 AM
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Join Date: Aug 2002
Location: Toronto
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In Stadium Building Spree, U.S. Taxpayers Lose $4 Billion
In Stadium Building Spree, U.S. Taxpayers Lose $4 Billion
Sep 5, 2012
By Aaron Kuriloff and Darrell Preston
Read More: http://www.bloomberg.com/news/2012-0...4-billion.html
Quote:
New York Giants fans will cheer on their team against the Dallas Cowboys at tonight’s National Football League opener in New Jersey. At tax time, they’ll help pay for the opponents’ $1.2 billion home field in Texas. That’s because the 80,000-seat Cowboys Stadium was built partly using tax-free borrowing by the City of Arlington. The resulting subsidy comes out of the pockets of every American taxpayer, including Giants fans. The money doesn’t go directly to the Cowboys’ billionaire owner Jerry Jones. Rather, it lowers the cost of financing, giving his team the highest revenue in the NFL and making it the league’s most-valuable franchise.
- “It’s part of the corruption of the federal tax system,” said James Runzheimer, 67, an Arlington lawyer who led opponents of public borrowing for the structure known locally as “Jerry’s World.” “It’s use of government funds to subsidize activity that the private sector can finance on its own.” Jones is one of dozens of wealthy owners whose big-league teams benefit from millions of dollars in taxpayer subsidies. Michael Jordan’s Charlotte, North Carolina, Bobcats basketball team plays in a municipal bond-financed stadium, the Time Warner Cable Arena, where the Democratic Party is meeting this week. The Republicans last week used Florida’s Tampa Bay Times Forum, also financed with tax-exempt debt. It is the home of hockey’s Lightning, owned by hedge-fund manager Jeffrey Vinik.
- Tax exemptions on interest paid by muni bonds that were issued for sports structures cost the U.S. Treasury $146 million a year, based on data compiled by Bloomberg on 2,700 securities. Over the life of the $17 billion of exempt debt issued to build stadiums since 1986, the last of which matures in 2047, taxpayer subsidies to bondholders will total $4 billion, the data show. Those estimates are based on what the Treasury could have collected on interest from the same amount of taxable bonds sold at the same time to investors in the 25 percent income-tax bracket, the rate many government agencies assume. In fact, more than half the owners of tax-exempt bonds pay top rates of at least 30 percent, according to the Congressional Budget Office. So they save even more on their income taxes, a system that U.S. lawmakers of both parties and President Barack Obama have described as inefficient and unfair.
- Including the Cowboys’ Jones, there are 21 NFL owners whose teams play in stadiums built or renovated in the past quarter- century using tax-free public borrowing. Such municipal debt helped build structures used by 64 major-league teams, including baseball, hockey and basketball. The new generation of publicly owned stadiums was designed to increase revenue from high-priced seating as well as concessions and retailing. The venues have helped double the value of sports franchises since 2000, according to W.R. Hambrecht & Co., a financial services firm. That growth occurred even after Congress tried in 1986 to bar cities and states from building stadiums with tax breaks originally set up to help local governments cut their borrowing costs for building roads, sewers and schools. Lawmakers’ revisions instead unintentionally encouraged local officials to borrow even more for pro sports, according to Dennis Zimmerman, a retired Congressional Research Service economist who analyzed the act’s effects.
- Team owners covet income from luxury seating, naming rights, retail, parking and concessions because it is generally exempt from league requirements for pooling and sharing revenue from television broadcasts and ticket sales, according to Grant Long. During the past decade, studies by Grant Long; Robert Baade of Lake Forest College near Chicago; Victor Matheson, an economist at College of the Holy Cross in Worcester, Massachusetts; and others have found that stadiums are poor municipal investments. Nonetheless, political leaders are still willing to offer taxpayer-funded aid to team owners -- including muni-bond financing -- to lure or avoid losing a franchise and the civic pride and event-related jobs that go with it.
- Without the NFL’s Vikings, Minnesota is in “flyover” country, said state Senator Geoff Michel, an Edina Republican, in an April discussion of financing a $975 million stadium. “This is one of the things that puts us on the map,” he said. Because leagues control the supply of teams, the threat of relocation has proved powerful and credible. In March 1984, the Colts left Baltimore one snowy morning for Indianapolis and a new $95 million stadium built partly with public debt. Baltimore lured the Browns from Cleveland after the 1995 season with a $229 million muni-bond-financed structure. To land an expansion team in 1998, Cleveland provided a $315 million publicly financed building. The tax-exempt bonds for the new Baltimore and Cleveland venues cost federal taxpayers $69.3 million.
- The Tax Reform Act of 1986 removed sports facilities from the types of projects that could qualify for the subsidy. It required such bonds to become taxable if more than 10 percent of the debt for a facility built mainly for nongovernment use was to be repaid with revenue from a private business. The lawmakers who thought this would call a halt to tax-exempt stadium financing were wrong, according to Zimmerman, the economist. The wording of the law encourages cities and states to offer more-favorable terms to pro teams wanting financial assistance while preventing the borrowers from using stadium revenue to pay off the bonds, he wrote. The measure functions as “an open-ended matching grant” for stadiums, he said. Cities and states borrowed more money backed by tax revenue, not less, to make sure that no more than 10 percent of a stadium’s debt payments came from a private business, Zimmerman said.
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