September 8, 2016; Brookings Institution
It’s essentially received wisdom that metropolitan areas and entire regions of the country identify closely (in some cases, uncomfortably so) with professional sports franchises: St. Louis and the Cardinals work together to make the Mound City what the Wall Street Journal believes to be the country’s best sports town while Seattle and Washington State have recently developed into Seahawks Nation. Notwithstanding the good that comes from regional identification, Major League Baseball, the National Football League, and the National Hockey League find themselves collectively in the crosshairs of a recent report from the Brookings Institution that confirms yet another bit of what’s now commonly accepted as fact by policy analysts and community activists across the political spectrum: Public funding for private stadiums provides no real ROI to the communities in which the franchises keep a fan base.
The Brookings study takes this one step further and jumps down the rabbit hole of municipal bond issuance for these massive infrastructure projects and concludes, quite persuasively, that the problem isn’t simply one of local taxpayers funding multimillion-dollar local sports facilities. In fact, most taxpayers balk at the notion of their hard-earned dollars underwriting arenas. The core of the problem resides in a longstanding practice of the federal government and many state legislatures: a tax loophole provided to the typically affluent purchasers of municipal bonds, which exploits taxpayer money from all over the United States to provide generous tax breaks on interest income to municipal bond investors. All of this, again, as reported in the study, comes to no benefit for local municipalities or the regional fan bases of major league sports franchises.
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To paraphrase a quote from Lenin as mediated through The Dude in The Big Lebowski, one looks for the entity that will benefit. The Brookings report demonstrates, with sound methodology, which entities and individuals win and lose in this competition for funding. It’s not, unfortunately, the communities that love their hockey or football teams, nor is it the bar serving beer to thirsty baseball fans on a muggy summer evening after a bruising loss to a despised rival. Quite the opposite: The taxpayer/fan loses through the policy of treating municipal bond income as tax-exempt, since it’s actually investors, often from outside of the community, along with the franchises as entities, that reap substantial benefits.
To be fair, however, the Brookings report doesn’t paint municipal bond investors and team ownership as pure villains. The report does a fair job of pointing out franchises that chose different funding models for new facilities; likewise, municipal bonds fund many countless civic projects. It’s also not a stretch to argue that a strong local sports franchise creates a kind of social ROI through increased community cohesion and strengthened, shared civic identity in a progressively atomizing culture. What the report does elucidate, however, is the need for real reform of the way stadiums are financed—and indeed, several franchises accomplished their goals of new facilities without public funding, a fact noted clearly in the report. In addition, Congress and state and local governments need to take a closer look at the rationale behind the interest deduction loophole that puts the vast majority of American taxpayers on the hook for the financial benefit of a comparatively small number of entities and investors.—Joseph Goldkamp