A provision in President Obama’s proposed 2016 budget could virtually eliminate public stadium subsidies by curtailing tax exemptions on the bonds used to finance them.
According to Politico, the proposal “is unlikely to become law,” but may “spark a political debate that would force Republicans to decide whether they want to stand up for a tax break that some conservatives deride as a corporate handout.”
Currently, federal law allows state and local governments to issue tax-exempt bonds to subsidize projects like stadium construction, as long as private financing covers less than 10 percent of the project’s cost and no more than 10 percent of the facility’s planned use is “attributed to a private interest.”
Both conditions must apply in order for the bonds to lose their exemption, which paradoxically creates an incentive for governments to absorb most of the expense of constructing venues that offer limited public utility. (RELATED: Illinois: Sweet Land of Stadium Subsidies)
Obama’s proposal would eliminate the “private payment test,” meaning tax-exempt bonds could only be used to subsidize athletic facilities if at least 90 percent of their use is reserved for public entities.
“Because almost all professional sports stadiums and arenas would fail that test,” Think Progress explains. “The Obama proposal would virtually eliminate a tax exemption that provides millions of dollars in federal subsidies each year to sports facilities.”
Cities would still be allowed to finance private venues under the Obama plan, but would have to do so without the artificially low interest rates available on tax-exempt bonds, “raising the cost of an already pricey endeavor in a way that could affect the way lawmakers and local taxpayers view the deals.”
Between 2016, when the new rule would take effect, and 2025, the White House projects that it will increase tax revenues by about $542 million. (RELATED: Berkeley’s New Stadium Put it $445 Million in Debt)
However, the proposal “could put Republicans in a tough spot,” Politico says, pointing out that, “the issue is already causing headaches for Wisconsin Gov. Scott Walker,” who last week proposed spending $220 million on a new arena for the Milwaukee Bucks basketball team.
Walker argues that without the subsidy, the Bucks would be “obligated” to consider relocating in 2017, but he is nonetheless “facing criticism from conservative and small government groups in Wisconsin that worry stadium deals amount to corporate welfare.”
Bob Dohnal, publisher of the Wisconsin Conservative Digest, told Politico that, “All these claims about development and improving the economy are all just baloney,” and suggested Walker’s real concern is that “when you lose a franchise, you get a black eye.”
Meanwhile, Politico says Republicans in Congress “are shrugging off the issue,” preferring to focus on the more high-profile provisions of the president’s budget request. (RELATED: Super Bowl Shines Spotlight on Stadium Subsidies)
Reason, on the other hand, asserts in a blog post that ending stadium subsidies and related corporate welfare is “an Obama initiative that all libertarians can get behind.”
“When it comes to stadiums and other sorts of venues (including in many cases convention centers),” Reason explains. “These are undisguised handouts to connected businesses,” and in that sense are not substantively dissimilar from eminent-domain abuse, whereby “governments seize a property and then turn it over to private interests.”
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