In the latest tax reform proposal, private activity bonds – a standard tool to finance stadium construction for decades – have been placed on the chopping block. House Republicans released proposed tax reforms that would eliminate private activity bonds. Interest earned on private activity municipal bonds is tax exempt. It is estimated that the government could raise about $40 billion over 10 years by eliminating the exemption.
Approximately three dozen professional sports stadiums have been financed with tax-exempt bonds since 2000. Proponents of using private activity bonds to support stadiums argue that stadium construction stimulates the economy, adds jobs, and improves the social and cultural feel of cities. Critics of tax-exempt bonds, though, argue that the tax-exempt bonds are a form of corporate welfare and point to recent studies to argue that economic gains are overstated, particularly as stadium costs have skyrocketed.
Congress has attempted to end subsidies for stadiums in the past. For example, the Tax Reform Act of 1986 included a provision that made bonds ineligible for federal tax exemption if the project being financed was at least ten percent privately owned or if more than ten percent was to be used for private purposes. However, this had the unintended consequence of localities funding ninety percent or more of project costs to keep their teams when owners threatened relocation.
Before the House GOP’s proposal is enacted, the bill will go through revisions, and the Senate still must release its version of the tax bill. The bills, then, will need to go through reconciliation. Thus far, Democrats have attempted to work with Republican lawmakers to preserve private activity bonds’ tax benefits, arguing that not only stadiums, but hospitals, airports, universities, museums, and low-income housing, among other developments, also are funded through private activity bonds.
Ian Ferrell is a Sports Highlight Contributor for the Harvard Journal of Sports and Entertainment Law and a current first year student at Harvard Law School (Class of 2020).