Tax-Exempt Municipal Bonds and the Financing of Professional Sports Stadiums

Home , Allegiant Stadium, Barclays Center, Joseph Tsai

National Tax Journal, March 2020, 73 (1), 157–196 https://doi.org/10.17310/ntj.2020.1.05

TAX-EXEMPT MUNICIPAL BONDS AND THE FINANCING OF PROFESSIONAL SPORTS STADIUMS

Austin J. Drukker, Ted Gayer, and Alexander K. Gold

This paper examines the role of federal tax subsidies in the form of preferences granted for bonds that state and local governments issue to finance the construction of professional sports stadiums. We examine 57 stadiums built since 2000, 43 of which were funded, at least in part, with federal tax expenditures in the form of tax-exempt municipal bonds. We estimate that the present value subsidy to the bond issuers was $3.6 billion and the total revenue loss to the federal government was $4.3 billion. We conclude with suggested reforms to reduce or eliminate this inefficient subsidy for professional sports stadiums.

Keywords: sports, stadium, subsidy, tax exempt, municipal bond JEL Codes: H21, H42, H71

I. INTRODUCTION his paper examines the public provision of professional sports facilities through tax- Texempt municipal bonds, which are bonds issued by state and local governments to support infrastructure and other public goods projects. The interest earned by holders of such bonds is exempt from federal taxation; hence, tax-exempt municipal bonds confer an indirect federal subsidy to the issuers. Most academic papers and popular news cov- erage focus on local subsidies to build professional sports facilities. This paper brings attention to and formally estimates federal subsidies for professional sports stadiums. A growing body of research on the economics of sports stadiums has emerged since the important work of Noll and Zimbalist (1997) and Siegfried and Zimbalist (2000), though a literature on federal subsidies for sports stadiums has been scant. Ours is the first paper to calculate the federal subsidy for professional sports stadiums conferred through the use of tax-exempt municipal bonds. We extend the seminal work of Zim- merman (1985, 1991, 1996, 1997, 2008) and attest to its relevance in a modern setting.

Austin J. Drukker: Department of Economics, University of Arizona, Tucson, AZ, USA (adrukker@ email.arizona.edu) Ted Gayer: Economic Studies Program, Brookings Institution, Washington, DC, USA ([email protected]) Alexander K. Gold: Economic Studies Program, Brookings Institution, Washington, DC, USA (akgold@ brookings.edu) 158 National Tax Journal

Public funding for stadiums is a topic of considerable public policy interest. Profes- sional sports leagues are private enterprises controlled by small groups of wealthy owners, and sports teams yield considerable monopoly power over their home cities, allowing them to extract hundreds of millions of dollars in local subsidies through taxable and tax-exempt municipal bonds. While the large local subsidies often receive the bulk of media attention, almost no attention is paid to federal subsidies implicit in every tax-exempt municipal bond. Since the interest earned on municipal bonds is exempt from federal taxation, bondholders receive a tax break for holding them and the savings are passed along to the local governments in the form of lower interest payments. The justifications for publicly funding stadiums are weak, and the justifications for federal government subsidies are even weaker. Generally, provision of public goods is justified if the private sector would fail to provide socially desirable amounts — that is, services whose social benefits exceed social costs but which are privately unprofitable — or when the activity is subject to continually decreasing average costs. The degree to which a public project is likely to be underprovided by private firms suggests the degree of responsibility the government should take in providing the project. This analytical framework also suggests the conceptual basis for determining the appropriate division among federal, state, and local funding for public goods. To the extent that economies of scale or public benefits cross jurisdictional borders, there is a justification for the larger jurisdiction in which the benefits fall to subsidize the subjurisdiction considering the project. The use of the tax code to subsidize public goods has two budgetary implications. First, the lost tax revenue from tax-exempt bonds is not part of the computation of federal spending and, therefore, is not included in the federal budget. This reduces the transparency of the federal allocation of resources to these projects. Second, and related, the federal government’s control over the tax subsidy is limited because the amount of the tax expenditure is not decided through the annual appropriations process. It is, in effect, a form of entitlement spending whose amount is largely determined by circumstances outside the federal government’s control (Congressional Budget Office and Joint Committee on Taxation, 2009). Additionally, the use of tax-exempt bonds is an inefficient form of subsidy, since the loss of federal tax revenue exceeds the reduction in the bond issuers’ interest costs (more on this to come). Little effort has been given at the federal level to ending federal stadium subsidies since the 1990s, until 2015, when a provision to remove the subsidy was included in President Barack Obama’s budget proposal (U.S. Department of the Treasury, 2015).1 Since then, several bipartisan bills to remove the subsidy have been introduced in Congress.2 While the value of the federal revenue loss from subsidizing

1 deMause, Neil, “Is Obama Really Going to Kill Sports Stadium Subsides?” VICE, March 18, 2015; Lueck, Thomas J., “Moynihan’s Tax-Break Bill Could Foil Dreams of Fields,” New York Times, July 14, 1996. 2 The bills introduced were H.R. 811 (February 2017), S. 1342 (June 2017), H.R. 1 (December 2017), S. 1242 (April 2019), and H.R. 2446 (May 2019). Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 159 sports stadiums is relatively small compared to the whole of the federal budget deficit, it is a “small but egregious misuse of federal tax dollars,” and so deserves some attention.3 In light of the economic and public policy interest, this paper presents an analysis of federal subsidies for professional sports stadiums. We examine the size of the subsidy and the total federal tax expenditure for all professional sports stadiums newly constructed or majorly renovated in the United States since 2000 for the four largest American sports leagues: Major League Baseball (MLB), the National Football League (NFL), the National Basketball Association (NBA), and the National Hockey League (NHL).4 Of the 57 stadiums that fit this description, 43 were funded, at least in part, with federal tax expenditures in the form of tax-exempt municipal bonds. We estimate that the total tax-exempt bond principal issued to fund these stadiums was approximately $16.7 billion, the present value subsidy to the bond issuers was $3.6 billion (assuming a 3 percent discount rate) or $3.0 billion (assuming a 5 percent discount rate), and the present value federal tax revenue loss was $4.3 billion (3 percent discount rate) or $3.5 billion (5 percent discount rate), with all values expressed in 2018 dollars.5 We conclude the paper with suggested reforms to reduce or eliminate this inefficient subsidy for professional sports stadiums.

3 Reuters staff, “Republican Tax Plan May Mean Slightly Less Grand Sports Stadiums,” Reuters, November 2, 2017. 4 Our starting year of 2000 is arbitrary; the oldest stadium in our data set is Minute Maid Park, which opened on March 30, 2000. We include all stadiums that — as of this writing, to the best of our knowledge, and if applicable — have had tax-exempt bonds issued or that have broken ground. What qualifies as amajor renovation is subjective but generally means a renovation that is newsworthy and used tax-exempt financing. We include all renovations designated as major by Long (2012) and Baade and Matheson (2012), excluding Hard Rock Stadium (Sun Life Stadium), which went through extensive, privately financed renovations in 2015; we also exclude KeyArena, which is currently undergoing extensive, privately financed renovations. Chesapeake Energy Arena is the lowest-cost renovation in our data set, at $141 million; and Soldier Field is the highest-cost renovation, at $860 million. Two stadiums — Marlins Park and Yankee Stadium — used tax-exempt bonds to finance parking facilities, which we also include in our data set. 5 Theory suggests that the discount rate should be the opportunity cost of the stadium relative to other investments. Since a city or county may invest in other projects or capital investments, municipal bond interest rates are a good measure of this opportunity cost. The 20-year municipal bond interest rate at present is roughly 3 percent. But a stadium’s opportunity cost may also be considered against other private investments. In this case, the opportunity cost would be close to the 20-year corporate bond interest rate, which at present is roughly 4 percent. Given the current low-interest-rate environment, a discount rate in the 2 percent range is probably too low. Paul Scheuren recommends a discount rate of between 4 and 5 percent. Our estimates using a 3 percent discount rate, then, assume the municipality is relatively patient, while our estimates using a 5 percent discount rate assume the municipality is relatively impatient. Finding the correct discount rate is nearly impossible, but we believe 3 and 5 percent are reasonable choices. Scheuren, Paul, “Choosing a Discount Rate,” blog post, September 12, 2001, https://impactdatasource.com/choosing- a-discount-rate/. 160 National Tax Journal

II. BACKGROUND In granting stadium subsidies, governments claim that stadiums are public goods that generate benefits that flow to the community rather than to team owners (Decker, 2019). Stadium subsidies require some economic justification because private activities take place in the stadiums and professional sports are not pure public goods (Hum- phreys, 2019).6 Sports stadiums do not exhibit economies of scale, so there is no natural monopoly justification for government subsidies. Instead, the justification often given for government subsidies for stadiums — in particular, local subsidies — is that there are spillover gains to the local economy from a stadium that are greater than the cost of the subsidies to local taxpayers (Jozsa, 2003).

A. Should Governments Subsidize Sports Stadiums? The evidence for large spillover gains from stadiums to the local economy is weak. Academic studies consistently find no discernible positive relationship between sports facility construction and local economic development, income growth, or job creation.7 Indeed, after 20 years of academic research on the topic, “Articles published in peer- reviewed economics journals contain almost no evidence that professional sports franchises and facilities have a measurable economic impact on the economy” (Coates and Humphreys, 2008, p. 302), and in the decade since Coates and Humphreys (2008), no new evidence of tangible economic benefits generated by professional sports stadiums or teams has emerged (Humphreys, 2019). “Few fields of empirical economic research offer virtual unanimity of findings … that there is no statistically significant positive correlation between sports facility construction and economic development” (Siegfried and Zimbalist, 2000, p. 103). This finding should not be surprising, given that team revenues typically constitute a small share of a city’s economic output and teams do not employ a substantial number of people. In addition, given that most consumers have a relatively inflexible leisure budget, any economic activity generated while attending a game will largely, if not entirely, be offset by reduced spending on other local leisure activities. The money spent at games comes primarily from local residents and would have been spent elsewhere in the area absent a professional sports team (Humphreys, 2019). Baade and Sanderson (1997), for instance, observed a reordering of leisure expenditures within cities that acquired new sports teams, but there was no evidence that the new teams brought output or employment growth to the local area. A more plausible justification for local subsidies is that there are public-good benefits to local residents who never attend the games, in the form of enjoyment from following

6 Professional sports arguably exhibit aspects of public goods. Granted, once a stadium is at capacity, attending games in person is excludable and rivalrous; but much of the consumption from the event occurs outside the stadium. For example, sporting events create news and information that are nonexcludable and nonrivalrous in consumption. Although a professional sports league may hold copyright on the transmission of broadcast rights, the information about the game is considered a set of facts that can be freely reported as news. 7 See, for example, Baim (1994), Rosentraub et al. (1994), Baade (1996), Zimmerman (1996), Noll and Zimbalist (1997), Coates and Humphreys (1999, 2008), Siegfried and Zimbalist (2000), and Jozsa (2003). Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 161 the team, watching the games on TV (above and beyond the benefits of watching the other cities’ teams play), and talking to fellow local fans (Matheson, 2019a). Relatedly, some residents might find value in living in a place considered a “Big League City.”8 While teams may be able to capture the use value of local sports fans through ticket sales, they are unlikely to be able to capture the option value of local residents, which accounts for consumers’ willingness to pay for having a sports entertainment option available even if there is little or no likelihood they would ever partake (Matheson, 2019a). These benefits are difficult to estimate, and whether they meaningfully exist at all is questionable (Siegfried and Zimbalist, 2000).9 “Sports may make a city happy, but they are unlikely to make a city rich” (Baade and Matheson, 2012, p. 339).10 Even if one believes, contrary to the empirical evidence, that the spillover benefits to the local economy justify taxpayer support, or that the benefits of following and talking about the teams are substantial, there remains very weak economic justification for federal subsidies for sports stadiums. Most residents of, say, New York, Massachusetts, or California — unless they are avid fans — gain nothing from the Washington-area football team’s decision to locate in Virginia, Maryland, or the District of Columbia. Yet, under current federal law, taxpayers throughout the country ultimately subsidize the stadium, wherever it is located. However, location is not the only relevant factor for justifying federal subsidies. Arguably, the benefits of professional sports stadiums are no more local than the benefits associated with most other uses of funds from tax-exempt bonds, such as schools, hospitals, and libraries — socially desirable projects that the private market might fail to adequately produce. The largest professional sports leagues are profitable enterprises that would likely continue to thrive without federal financial support, so arguments that these sports would be underprovided without subsidies are weak.11 Ultimately, the problem is one of rent seeking, since professional sports leagues are able to extract local and federal subsidies by exerting concentrated power while the costs of the subsidies are diffuse.

8 Seattle Times staff, “Oklahoma City Passes Arena Tax to Lure Sonics,” Seattle Times, March 5, 2008. 9 These nonmarket benefits would need to be greater than or equal to the subsidy to justify the subsidy. 10 Subsidy proponents sometimes point to urban revitalization as an additional reason for public subsidization (Rosentraub, 2014). But a growing body of research finds that professional sports may actually generate substantial negative externalities, in the form of increased crime (Kalist and Lee, 2016; Marie, 2016; Yu et al., 2016; Pyun, 2019), traffic congestion (Humphreys and Pyun, 2018), and air pollution (Locke, 2019), suggesting that new stadiums should actually be taxed to correct for the negative externalities, not subsidized (Humphreys, 2019). Matheson (2019b) disputes whether an increase in crime around sporting events “is particularly damning” since it should come as no surprise that crime increases when one congregates a large number of people in a specific place: “If a big sporting event attracts all of the pickpockets and purse-snatchers, that shouldn’t be considered as a cost if this crime is simply diverted from another part of town” (Matheson, 2019b, p. 280). 11 Of course, not all professional sports leagues are profitable, and there is an argument to be made that the private market would struggle to adequately provide socially desirable leagues. For example, the private market has struggled to produce a viable women’s soccer league in the United States. One reason for this could be that the aggregate consumer benefits are less than the costs of providing a league, so not having a league is efficient. Alternatively, it could be that private firms are not able to extract enough of the consumer benefits to pay the expenses, even though the benefits exceed the costs of having a league. These problems could arise because of the nonrival nature of the sport and the difficulties in excluding people from its benefits. If it is socially efficient to have a league, then the lack of a league is a market failure, in which case a subsidy could be justified. 162 National Tax Journal

B. How Governments Subsidize Sports Stadiums Before the late 1960s, nothing in federal tax law prevented state and local officials from issuing bonds and using the proceeds to finance investments for private individuals and businesses (Zimmerman, 1999). The Revenue and Expenditure Control Act of 1968 placed restrictions on the activities eligible for tax-exempt financing by declaring state and local bonds taxable if more than 25 percent of the bond proceeds were to be used by a nongovernmental entity and if more than 25 percent of the debt service was secured by property used directly or indirectly in a private business. The 1968 law did, however, exempt certain activities that exceeded these 25 percent thresholds, including the financing of sports stadiums (Zimmerman, 1996). With the Tax Reform Act of 1986, Congress attempted to do away with the tax exemption for bonds used to finance sports stadiums by eliminating them from the category of private activity bonds exempt from federal taxation. The Tax Reform Act of 1986 categorized a bond as private if it met two conditions: (1) more than 10 percent of the bond proceeds are used for any private business use; and (2a) more than 10 percent of the bond proceeds are secured directly or indirectly by interest in property used for a private business use or (2b) more than 10 percent of the bond proceeds are derived directly or indirectly from payments in respect of property used for a private business use (Internal Revenue Service, 2016a). The first condition is known as the private business use test; the second conditions are known as the private security test and private payment test, respectively; and the first and second conditions are known collectively as the private business test. While there remained a list of private activities specifically exempt from federal taxation, stadiums were excluded from that list. Under prevailing law, a stadium bond can remain exempt from federal taxation if it fails either the private business use test or the private payment or security test. Stadium bonds will undoubtedly pass the private business use test, since professional sports teams will almost always consume more than 10 percent of a stadium’s useful services. Therefore, to be eligible for federal tax exemption, a stadium bond issuance must be structured so that no more than 10 percent of its debt service is secured by interest in the stadium and no more than 10 percent of the bond proceeds are from payments derived from the stadium. This sets up an artificial financing structure whereby federal tax exemption is granted if the state or local government is willing to finance at least 90 percent of the debt service for the bonds. Additionally, since this 90 percent of financing cannot come even indirectly from private activity related to the stadium if tax exemption is to be maintained, the state and local governments cannot rely on stadium-generated revenue, such as a tax on entry tickets to the stadium or rent collected from the team as tenants.12

12 Ticket taxes or surcharges are not without their critics, as few other businesses are allowed to use taxes collected on their customers to pay for their own capital expenditures (Baade and Matheson, 2006). Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 163

Table 1 Revenue Sources for Tax-Exempt Municipal Bonds Category Tourist Tax (%) Sales Tax (%) General Public Revenues (%) Overall 47 37 21 MLB 33 40 13 NFL 53 47 18 NBA 67 11 22 NHL 14 14 29 Large city 56 13 13 Medium city 38 38 38 Small city 35 53 12 Notes: The table shows the percentage of stadium-related tax-exempt municipal bonds in our data set that utilized tourist taxes, sales taxes, or general public revenues as security for the bonds. Tourist taxes include hotel taxes and vehicle rental taxes. Some bonds utilize multiple sources of revenue as security. Large cities are those with populations above 1 million, medium cities are those with populations between 500,000 and 1 million, and small cities are those with populations below 500,000. Sources: Authors’ calculations; official bond documentation; see Appendix A.

The Tax Reform Act of 1986 effectively requires that a state or local government must finance the bulk of the stadium to receive the federal subsidy, and further that it must rely on tax revenue unrelated to the stadium for the financing. Table 1 shows revenue sources for the tax-exempt stadium bonds in our data set. The most common type of tax imposed to finance sports stadiums — used for 47 percent of the stadiums in our data set — is known as a tourist tax, which is a tax levied on hotel stays and rental cars; this is a particularly attractive option for local authorities because they can advertise to their constituents that the tax burden will fall primarily on nonresidents. Taxes on rental cars, hotels, and city-center restaurants, while seemingly shifting the expense of the stadium to out-of-town visitors, in fact simply make those revenue sources unavailable for use elsewhere in the city. Furthermore, only a tiny fraction of the hotel rooms or rental cars used in a city over the course of a year are purchased by sports tourists. General sales taxes are another common form of funding, used for 37 percent of the stadiums in our data set. Using sales tax revenue to fund stadium bonds is also prob- lematic because it violates notions of vertical equity by placing an undue burden on poorer residents. Both revenue sources — sales taxes and tourist taxes — are regressive, while the benefits provided by the subsidized stadiums accrue primarily to the wealthy (Baade and Matheson, 2012). The prohibition on using even indirect stadium revenue to finance the bonds violates a common criterion of fairness known as the benefits-received 164 National Tax Journal principle, which holds that a publicly provided good or service should be paid for by people in proportion to the benefits they receive from the good or service.13 Table 1 also shows cross tabulations of revenue sources by league and by city size. Two-thirds of NBA arenas were funded using tourist taxes, compared to about half of NFL stadiums and one-third of MLB stadiums. Sales taxes were the most common form of funding for MLB stadiums, and tourist taxes were the most common form of funding for NFL stadiums. NHL arenas relied mostly on general public revenues to finance their bonds. Large cities, defined as having at least 1 million people, were far more likely to use tourist taxes than sales taxes or general public revenues, which makes sense because larger cities are likely to have more tourists. Medium-sized cities with populations between 500,000 and 1 million were equally likely to utilize sales taxes, tourist taxes, and general public revenues to finance their bonds. Small cities with populations below 500,000 were most likely to use sales taxes, consistent with the idea that smaller cities will need a broader tax base because they have fewer tourists to tax. For example, consider the financing structure for FedExForum, home of the NBA’s Memphis Grizzlies. Payments for the bonds are secured by a combination of tourist taxes, general sales taxes, and stadium-related revenues. Hotel and vehicle rental taxes comprise 49 percent of the security for the bonds, general sales taxes comprise 28 percent, seat rental fees comprise 8 percent, and “payments in lieu of taxes” (PILOTs) from Memphis’s public water utility comprise the remaining 15 percent. The sales taxes are generally applicable, meaning they are levied jurisdiction-wide, but only taxes collected on stadium-related sales (tickets, concessions, and merchandise) are used as security for the bond payments, ensuring that the bonds fail the private payment and security tests. Conversely, the seat rental fee is clearly stadium-related revenue, and the bond documentation is careful to note that “not more than 10 percent of the aggregate debt service on the bonds may be paid from seat rental fees.”14 In addition to the tax incentive, professional sports teams have considerable negotiat- ing power with state and local governments, since the four major professional sports leagues control both the movement of their franchises and the total number of franchises in the leagues, resulting in demand for major sports franchises that exceeds the existing

13 Note that “generally applicable taxes” are acceptable sources of funding regardless of which goods or services are taxed, meaning taxes on stadium-related sales can be used to finance the bonds if such taxes are also levied jurisdiction-wide (Code of Federal Regulations, title 26, section 1.141-4(e)). Additionally, the Internal Revenue Service, in recent years, has ruled that property taxes for the land on which the stadium resides can be used, in some cases, to fund the stadium bonds. In 2006, after New York taxpayers indicated a reluctance to fund new stadiums for the Yankees and Mets using general tax revenue, the Internal Revenue Service issued two private-letter rulings allowing stadium-related property tax revenue to be classified as PILOTs, which could be used to pay the debt service on governmental debt (Internal Revenue Service, 2006a, 2006b). These rulings had the advantage of making the financing of these stadiums more consistent with the benefits-received principle, but they had the disadvantage of reducing local taxpayer resistance to federally subsidized public financing of stadiums (Zimmerman, 2008). In 2009, PILOT bonds were used to fund a third New York stadium, the Barclays Center. 14 Official bond issuance documentation is available upon request from the authors. Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 165 supply. The leagues, in effect, have monopoly power over the placement and number of major sports teams; therefore, they have a strategic incentive to expand the number of teams fast enough to deter the formation of rival leagues yet slow enough to ensure that threats by existing franchises to relocate are taken seriously (Siegfried and Zimbal- ist, 2000). Team owners will always have an outside option where they can credibly threaten to move (Humphreys, 2019), which will likely deter local governments from taxing professional sporting events (Humphreys and Zhou, 2015). This enables them to extract subsidies from state and local governments that likely would not occur otherwise.

III. ESTIMATING THE SUBSIDY AND TOTAL TAX REVENUE LOSS The federal tax exemption for interest income from municipal bonds enables issuers of such debt to sell bonds that pay lower interest rates than comparable taxable bonds, since investors are willing to accept a lower before-tax rate of return than they would receive on taxable bonds. Suppose a bond investor faces a tax rate of 35 percent on additional income and the rate of return on a taxable bond is 5 percent. Then, as long as the rate of return on a comparable tax-exempt bond exceeds 3.25 (=5 × (1 – 0.35)) percent, the investor prefers this option to the taxable bond option.15 More generally, if τ is an individual’s marginal tax rate and rx is the rate of return on taxable bonds, the investor is willing to purchase nontaxable bonds as long as his return exceeds (1 – τ)rx. Hence, the issuers can borrow funds at rates lower than those prevailing on the market, providing them with a subsidy from the federal government. Our model aligns closely with the Joint Committee on Taxation’s (2012b) basic portfolio model. Our estimates are static in the sense that changes in tax law do not cause changes in economic aggregates, so changes in the amount of tax-exempt bonds issued are assumed not to generate induced revenue effects due to changes in the aggregate level of output in the economy. In addition, we assume that interest rates, including taxable and tax-exempt market interest rates, do not change as a result of changes in tax-exempt bond issuance. We assume lenders have perfectly elastic demand for tax-exempt debt, meaning any change in the supply of tax-exempt municipal bonds is not large enough to satiate the demand for tax-exempt bonds of the marginal investors; hence, the tax- exempt interest rate does not change. The most important implication of this assumption is that the relative interest rates of tax-exempt and taxable bonds do not change as bond issuance changes. Since changes in the issuance of taxable municipal bonds that occur as a result of most proposals are small relative to the size of the entire capital market, it is reasonable to assume that there are not significant changes in relative interest rates.16 Additionally, to predict changes in investor behavior that occur from changes in the law regarding tax-exempt bonds, it is necessary to model investor portfolio choice. We employ the Joint Committee on Taxation’s (2012b) taxable bond substitution model,

15 This assessment assumes that the taxable and nontaxable bonds are comparable with respect to characteristics such as risk, time to maturity, and other factors. 16 See Galper and Toder (1981) for potential implications of relaxing this assumption. 166 National Tax Journal which models this choice using a two-asset investment portfolio model where investors choose the amount of taxable and tax-exempt bonds to hold in their portfolios that maximizes their after-tax return (subject to risk, liquidity, diversification, and other factors). The market-clearing tax-exempt bond yield is determined by the marginal tax rate of the marginal investor in tax-exempt bonds.17 Poterba and Ramírez Verdugo (2011) argue that the taxable bond substitution model overstates the revenue cost of changes in tax-exempt bond issuance since investors might consider more lightly taxed assets (such as corporate stock) in addition to taxable bonds as substitutes for tax-exempt debt. But, as noted by the Joint Committee on Taxation (2012b), in many cases, the taxable bond substitution model closely approximates a model that explicitly assumes alternative portfolio decisions. To the extent that a particular tax-exempt bond investor cares more about the income profile of the investment than the tax treatment of that income, it is reasonable to assume that some of the holders of tax-exempt municipal bonds will substitute to taxable municipal bonds. In addition, many states exclude the interest income earned on municipal bonds from state taxes, regardless of the treatment for federal tax purposes.18 While investigating the revenue consequences of more realistic investor portfolio reallocations are important, determining whether the taxable bond substitution assumption either underestimates or overestimates the revenue cost relative to these alternative assumptions is difficult and would require a complete model of how changes in investment between the private sector and public sector occur and how they affect the level of corporate dividends, profits, and interest payments in the economy. One interpretation of the taxable bond substitution model is that it is based on a simple characterization of the economy that makes tractable the tracking of changes in taxable income for the practical purpose of calculating revenue estimates of tax-exempt bond proposals (Joint Committee on Taxation, 2012b).

A. Federal Subsidy The total value of the federal subsidy to borrowers is computed by multiplying the interest savings (the spread between the interest rate of a taxable bond and the interest rate of a tax-exempt bond of similar characteristics) by the bond principal in a given year, summed across the term of the bond (Galper and Toder, 1981; Zimmerman, 1991, 1997; Joint Committee on Taxation, 2008, 2012a, 2012b, 2013). More precisely, let

17 For provisions that affect all investors in a class of tax-exempt bonds, the relevant tax rate to calculate the change in revenue is the weighted-average marginal tax rate of the entire distribution of investors, where each investor’s marginal tax rate is weighted by his share of total tax-exempt bonds purchased. 18 A further complication arises from the fact that a large portion of taxable municipal bonds might be purchased by investors facing zero or very low marginal tax rates, such as pension funds, university endowments, tax-exempt entities, and foreign investors. These taxpayers are assumed to substitute taxable municipal bonds for other taxable bonds with a similar risk and interest income profile; that is, they are assumed to maintain the debt-to-equity ratio in their investment portfolios. The most critical assumption of the model is that taxable investors make the residual portfolio adjustments necessary to balance the financial transac- tions in the economy. See the Joint Committee on Taxation (2012b) for further discussion of this point. Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 167 n denote the term length in years, b the principal value (adjusted for inflation), t the years since issuance, and rx – rm the interest rate spread between taxable and nontaxable bonds in the year of issuance. The undiscounted value of the subsidy is computed as

n (1) Undiscounted valueof subsidy =∑ b(r x − r m ) = nb(r x − r m ). t=1

The present value of the subsidy using a discount rate of ρ is computed as

n b(r x − r m ) (2) Present valueof subsidy =∑ t . t=1 (1+ ρ)

Note that these calculations do not depend on the interest rates of individual bonds, per se, but rather the interest rate spread. Implicit in this calculation is the assumption that the spread between taxable and tax-exempt bonds is constant, regardless of the specific interest rate on each individual tax-exempt bond. The calculation assumes that the bonds are not amortized, a common feature of the bonds we examine.

B. Total Federal Revenue Loss The equations above yield estimates of the subsidy value to the issuer of the tax- exempt bond, but, because tax-exempt bonds are an inefficient way to provide a subsidy, the total revenue loss to the federal government exceeds the value of the subsidy to the issuers. To see why, assume there are two taxpaying investors: one who faces a 35 percent marginal tax rate and another who faces a 25 percent marginal tax rate. If the market rate of return on taxable bonds is 5 percent, then the after-tax return for the first investor is 3.25 (=5 × (1 – 0.35)) percent and that for the second is 3.75 (=5 × (1 – 0.25)) percent. To induce both to buy the tax-exempt bond rather than the comparable taxable bond, the net rate of return, therefore, must be at least 3.75 percent. If the market-clearing return is 3.75 percent, then some of the federal tax subsidy is wasted on the first investor who would have been willing to buy the bond at any yield greater than 3.25 percent. This 0.5 percentage point difference is not translated into a gain for the borrower and is, instead, a windfall gain to the taxpayer in the higher tax bracket, reflecting an efficiency loss of the tax exemption. While all holders of tax-exempt debt benefit, tax exemption provides a larger benefit to high-income taxpayers (Zimmerman, 1999; Galper et al., 2014). This efficiency loss is captured by comparing the tax rate that clears the municipal market (τ*) to the average tax rate of the municipal bondholders (τ˜ ). Following Zim- merman (1991), define the transfer efficiency, E, as the market-clearing marginal tax rate, τ*, divided by the weighted-average marginal tax rate of municipal bondholders, τ˜ :

τ * (3) E = . τ! 168 National Tax Journal

Define the market-clearing marginal tax rate,τ *, as 1 minus the ratio of the tax-exempt bond yield, rm, to the taxable bond yield, rx:

r m (4) τ * = 1− . r x

Finally, define the weighted-average marginal tax rate of municipal bondholders,τ˜ , as the corporate (nonhousehold) share of municipal bonds held, sc, multiplied by the average marginal tax rate for corporations (nonhouseholds), τc, plus the household share of municipal bonds held, sh, multiplied by the average marginal tax rate for households, τ˜ h:

(5) τ* = scτc + shτ˜ h.

So, the transfer efficiency is r m * 1− x m τ x r − r (6) E = = r = . τ! scτ c + shτ! h r x (scτ c + shτ! h )

The federal revenue loss is computed by dividing the undiscounted and discounted values of the subsidy — Equations (1) and (2) — by this transfer efficiency, E.

n b(r x − r m ) (7) Undiscounted valueof revenueloss =∑ = nbr x (scτ c + shτ! h ). t=1 E

n b(r x − r m ) n br x (scτ c + shτ! h ) (8) Present valueof revenueloss =∑ t = ∑ t . t=1 E(1+ ρ) t=1 (1+ ρ)

These estimates assume that current holders of tax-exempt bonds would replace their holdings of these bonds with taxable bonds rather than other tax-preferred assets if the tax exemption were eliminated. This is a fairly strong assumption, because the relative tax advantage of tax-exempt income is greater for individuals with higher marginal tax rates.19 However, for reasons discussed at the beginning of this section, we believe this is an acceptable assumption.

C. Interest Rate Spread The estimates of the federal subsidies to the issuers of tax-exempt bonds rely crucially on the interest rate spread at the time that the tax-exempt bond is issued. The precision of the subsidy and revenue loss estimates, therefore, relies heavily on the assumption

19 Using the 1989–2013 Surveys of Consumer Finances, Bergstresser and Cohen (2016, Table 11) find that the mean marginal tax rate among households that own municipal bonds is roughly 19.6 percent, while the mean marginal tax rate among households that do not own municipal bonds is roughly 10.9 percent. Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 169 that the characteristics of the tax-exempt bond are comparable to the characteristics of the taxable bond along all dimensions except for whether the interest earned is subject to the federal income tax. In other words, the appropriate computation of the interest rate spread would compare taxable and nontaxable rates for bonds that have the same structure, term, credit risk, liquidity, and other factors. Historically, Treasury bonds were considered the appropriate taxable alternative to municipal bonds (Poterba, 1986; Heaton, 1986; Mankiw and Poterba, 1996) since both were considered close to riskless. More recent studies have assumed high-grade corporate bonds as the appropriate taxable alternative to municipal bonds (Joint Committee on Taxation, 2008, 2012a, 2012b, 2013).20 The Congressional Budget Office and Joint Committee on Taxation (2009) note that although municipal bonds and corporate bonds may vary somewhat in terms of risk, time to maturity, fixed versus variable interest payments, and other bond-specific factors, several potential sources of bias likely offset each other to a large degree. By computing averages of the two broadly similar categories of bonds, the goal is to capture similarities across the groups in terms of risk, liquidity, maturity, fixed versus variable payments, and other characteristics. If, for example, the tax-exempt bonds are considered higher risk or less liquid than the high-grade corporate bonds, then their yields will include a premium that would lead to an underestimate of the interest rate spread used in the calculations.

D. Principal Value and Term Length

A municipal bond issuance used to finance a stadium typically consists of many individual bonds, each structured in a particular way. They frequently combine three types of bonds: serial bonds, term bonds, and capital appreciation bonds. Serial bonds consist of smaller units that mature gradually over several years. Term bonds are single bonds that come due all at once, often with an optional or mandatory early call feature that allows the issuer to purchase bonds off the market at either par value or the current market price, whichever is lower. Many of the term bonds used to finance stadiums employ a mandatory sinking reserve fund, where the municipality makes deposits (often annually) into an account that is either held in escrow until the maturity date or immediately used to call some of the bonds. Because stadiums provide services over a long period of time, it makes sense to pay for them over a long period of time. Long- term bonds are an effort to match the timing of the payments for the stadium (taxes raised to fund interest and principal payments) to the flow of services from the stadium (Zimmerman, 1999).

20 Taxable municipal bonds are uncommon, and reliable indexes of taxable bond rates do not exist. Ideally, one would like to compare, for each municipality, the interest rate spread between taxable and tax-exempt municipal bonds. Such an exercise is impractical and arguably unhelpful, as the sample size of taxable municipal bonds would be small and constructing bond interest rate indexes is beyond our expertise. We believe the standard approach we employ is sufficient. 170 National Tax Journal

Table 2 Bond Issuance Structure for the Funding of FedExForum Total Principal Total Principal Number Types Value Value of of Series (2002 Dollars) (2018 Dollars) Bonds Bonds A 113,325,000.00 157,763,644.39 21 and 1 Serial and term B 88,965,000.00 123,851,247.50 19 and 2 Serial and term C 18,535,000.00 25,803,213.31 1 Term D 2,699,414.55 3,757,948.18 1 Capital appreciation E 1,300,890.80 1,811,014.99 1 Capital appreciation Source: Official bond documentation; see Appendix A.

Capital appreciation bonds are less common than the other two. For these bonds, the investment return on the initial principal is reinvested at a stated compound rate until maturity. Investors receive a single payment at maturity representing both the principal and the total investment return. Municipalities sometimes prefer capital appreciation bonds because reinvesting of the interest return means that only the original principal amount counts against any debt limit the municipality might have (rather than the much larger par value). To take one typical example, FedExForum, constructed in 2004, was financed by three separate bond issuances made in 2002. These bond issuances totaled $225 million in financing, split into five series, labeled A–E, with A and B appearing in one issuance, C in the second, and D and E in the third. Table 2 shows the total principal value of the five different series (in nominal 2002 dollars and inflation-adjusted dollars), the number of bonds in each series (bonds of the same maturity, interest rate, and type, which are sold in denominations of $5,000 to potentially many investors), and the different types of bonds within each series. Series A of this bond issuance, which combines both serial and term bonds, is representative of the type of financing frequently used for stadiums. The serial bonds in this issuance mature every year between 2004 and 2023, with the principal amounts increasing over time. As is common, these serial bonds are followed by larger term bonds, which are redeemed over the course of a few years through the use of a mandatory sinking reserve fund. Figure 1 displays the redemption schedule for the Series A bonds, consisting of the serial bonds and the term bonds. Of the $113.325 million issued in Series A, $70.61 million matures between 2004 and 2023, with the amounts escalating from $0.74 million due in 2004 to $7.145 million due in 2023. These serial bonds are then followed by term bonds totaling $42.725 million in 2028, with mandatory redemptions of $7.65 million in 2024, $8.24 million in 2025, $8.87 million in 2026, $9.52 million in 2027, Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 171

Figure 1 Redemption Schedule for the FedExForum Series A Bonds, 2004–2028

10 9 8 7 6 5 4 Amount due 3

(millions of 2002 dollars) 2 1 0 20042008 20122016202020242028 Maturity date

Serial bonds Term bonds

Source: Official bond documentation; see Appendix A. and $8.45 million in 2028. To compute the subsidy stemming from the tax exemption for the bonds that make up the Series A issuance, we multiply the interest rate spread in the year of the issuance (2002) by the redemption amount in each individual column in Figure 1, summing across the years until maturity (discounting at 3 or 5 percent). The present value subsidy for Series A is estimated as $43 million or $36 million, cor- responding to discount rates of 3 and 5 percent, respectively.

IV. DATA We examine the financing for all stadiums newly constructed or majorly renovated in the United States since 2000 for MLB, the NFL, the NBA, and the NHL. We obtained estimates of the total costs of the stadiums from various sources, including Long (2012), Baade and Matheson (2012), Anderson (2018), and local newspaper articles and websites.21 We obtained bond issuance data primarily from Electronic Municipal Market

21 Ford Field, home of the NFL’s Detroit Lions, is reported to have cost $430 million to build, of which $219 million was financed by tax-exempt bonds issued by Wayne County (Anderson, 2018, Appendix 3). We were only able to locate documentation for $16.965 million in bonds issued in 1997 by the City of Detroit. Results for Ford Field, therefore, are underestimates. 172 National Tax Journal

Access, a service of the Municipal Securities Rulemaking Board. See Appendix A for more information. We elect to only include the initial issuances reflecting the maturity date at the time of issuance. Some tax-exempt bonds are refunded sometime after issuance. Refunding bonds replace outstanding bonds with bonds that carry more favorable terms, such as lower interest rates. The refunding issue usually does not add to the stock of outstanding bonds or stock of capital, but rather its proceeds are used to pay off the remaining principal of the original bond issue (Zimmerman, 1999). Conceptually, it is ambiguous whether subsidy estimates based on refunded and reissued bonds would be higher or lower than estimates based on the original issuance, since it is the spread between the taxable and nontaxable interest rates that determines the size of the subsidy, not the level of the interest rate for the nontaxable bond, which presumably decreases between initial issuance and reissuance. Following Zimmerman (1991), we compute τ˜ as the average household and corporate tax rate weighted by household and corporate shares of municipal debt holdings. Poterba and Ramírez Verdugo (2011, Table 5) use the 2004 Survey of Consumer Finances to estimate the shares of municipal debt held by various tax brackets; based on their estimates, we compute the average household marginal tax rate for municipal bondholders to be 0.26.22 The corporate tax rate is 0.35. We calculate the household and corporate shares of municipal bond holdings based on Table L.212 of the Financial Accounts of the United States (Board of Governors of the Federal Reserve System, 2016, p. 112);23 the household share ranges from 0.58 (in 1996) to 0.76 (in 2004). We follow the more recent literature and use corporate bonds, rather than Treasury bonds, as our taxable alternative to tax-exempt municipal bonds. For each tax-exempt bond issued to finance a stadium, we use the average interest rate for high-grade municipal bonds at the year of issuance in our computation of the spread, rather than relying on the interest rate for the specific tax-exempt stadium bond. We do this because the interest rate on an individual tax-exempt stadium bond is determined by a host of characteristics that make it challenging to control for in a comparison with taxable bonds. Following Zimmerman (1991), we use average yields for 20-year municipal bonds rated Aa by Moody’s Inves- tors Service, and for the comparable taxable bonds, we use average yields for seasoned corporate bonds rated Aa by Moody’s.24 Moody’s data were collected from Bloomberg.

22 Evidence from the Survey of Consumer Finances suggests that the average household marginal tax rate for municipal bondholders has stayed roughly constant since the Tax Reform Act of 1986. Based on the nine Surveys of Consumer Finances conducted between 1989 and 2013, Bergstresser and Cohen (2016, Table 12) calculate that the marginal tax rate of the median household holding municipal debt has been roughly constant at 0.28 since 1989. Zimmerman (1991, p. 110) also uses 0.28 in his calculations. 23 We define corporate holdings of municipal securities to be the sum of assets held by (1) nonfinancial corporate business (line 9), (2) U.S.-chartered depository institutions (line 12), (3) property–casualty insurance companies (line 16), and (4) life insurance companies (line 17). Household holdings of municipal securities are defined as the sum of assets held by (1) the household sector (line 8) and (2) nonfinancial noncorporate business (line 10). 24 Our results are robust to alternative measures of bond yields, as shown in Table 4. Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 173

Figure 2 Interest Rate Spread between Municipal Bonds and Corporate Bonds, 1996–2018

2.5

2 )

1.5

1 (percentage points Interest rate spread

0.5

0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Year

Notes: Interest rates are annual averages. The figure compares Moody’s Aa-rated 20-year municipal bond average with Moody’s Aa-rated corporate bond index. Source: Moody’s Investors Service/Bloomberg.

Figure 2 shows the interest rate spread between Moody’s Aa-rated corporate bond yields and Moody’s Aa-rated municipal bond yields from 1996 through 2018.25 Note that the interest rate spread trends down, suggesting that subsidy estimates based on refunded and reissued bonds with the same maturity dates would be lower than our estimates that are based on the spread at the time of the original bond issuance. Similarly, adjusting the subsidy estimates to account for tax-exempt variable-rate bonds (which periodically adjust interest rates) would also yield lower estimates. Whether this decrease in spreads over time represents a reduction in the subsidy value (e.g., a change in expected future

25 Our interest rate spread calculation starts in 1996, since Miller Park, which completed construction in 2001, began issuing bonds in 1996. A few other stadiums, including American Airlines Center, CenturyLink Field, Comerica Park, Empower Field, Heinz Field, Minute Maid Park, Paul Brown Stadium, and PNC Park also began issuing bonds before 2000. 174 National Tax Journal tax rates or a market-driven change in the volume of tax-exempt bond issuance) or a change in the relative characteristics (e.g., a change in the relative perceived default risk) of the different bond categories is unclear.26

V. RESULTS Table 3 shows descriptive data for the 57 professional sports stadiums constructed or majorly renovated since 2000, consisting of 52 that underwent construction and 6 that underwent major renovation.27 The average major renovation cost was $393 million compared to an average construction cost of $767 million (in 2018 dollars). Table 3 also designates the 43 stadiums that were funded, at least in part, with proceeds from tax-exempt municipal bonds. The table shows the league, year of construction or renovation, year of bond issuance, total cost, and amount financed through proceeds from tax-exempt bonds. Column 6 of Table 3 shows the estimated cost (in millions of 2018 dollars) of constructing or renovating each of the major sports stadiums. The total cost across all the stadiums is $42.2 billion, and the most expensive stadium (to date) is Yankee Stadium, at nearly $2 billion in 2018 dollars, though SoFi Stadium, which is planned to open in 2020, is expected to cost nearly $5 billion. Column 7 shows the amount of the costs (in millions of 2018 dollars) financed by tax-exempt bonds for each of the stadiums. The total financing across all the stadiums is $16.7 billion, and the stadium that relied on the most tax-exempt financing is Yankee Stadium, at nearly $1.8 billion for the stadium and parking facility.28 Figure 3 plots, for each stadium, the subsidy and revenue loss amounts computed using a 3 percent discount rate. (The figure excludes Yankee Stadium, which is an outlier.) That all the dots lie on or above the 45° line demonstrates the efficiency loss of using tax expenditures to subsidize stadium construction. The residual distance between each point and the 45° line is a measure of the windfall gains to high-income taxpayers who hold the tax-exempt bonds. Table B1 shows federal subsidy and revenue loss estimates for the 57 stadiums, in undiscounted terms and discounted at the 3 and 5 percent levels. The largest subsidy went to Yankee Stadium, with a subsidy value of $456 million computed at a 3 percent discount rate and $358 million computed at a 5 percent discount rate.29

26 See, for example, Poterba and Ramírez Verdugo (2011) and the Joint Committee on Taxation (2013) for possible explanations of the declining yield spread. Mankiw and Poterba (1996) consider a model in which tax-exempt investors hold only taxable bonds and equities, while taxable investors hold only tax-exempt bonds and equities. The model predicts that the yield spread between taxable and tax-exempt bonds should be an increasing function of the dividend yield on corporate stocks. 27 Chesapeake Energy Arena, home of the NBA’s Oklahoma City Thunder, was both constructed and renovated since 2000. 28 Citizens Bank Park, FedExForum, Great American Ball Park, Lucas Oil Stadium, Paul Brown Stadium, and Toyota Center relied on tax-exempt municipal bonds to finance at least 90 percent of their total costs. 29 The three New York stadiums financed by PILOT bonds — Yankee Stadium, Citi Field, and Barclays Center — received roughly one-fifth of the total federal subsidies. Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 175

Table 3 Descriptive Data

(1) (2) (3) (4) (5) (6) (7) Use of Tax- Tax- Total Exempt Exempt Year of Cost of Municipal Municipal Year Bond Stadium Bonds Issued Stadium Team (League) Bonds Completed Issuance ($Million) ($Million) Allegiant Stadium Las Vegas Raiders (NFL) x 2020 2018 1,800 645 American Airlines Miami Heat (NBA) 2000 NA 310 0 Arena American Airlines Dallas Mavericks (NBA)2 x 2001 1998 594 161 Center Amway Center Orlando Magic (NBA) x 2010 2008 551 362 Arrowhead Stadium Kansas City Chiefs (NFL) x 20101 20064 431 333 AT&T Center San Antonio Spurs (NBA) x 2002 2000 259 179 AT&T Stadium Dallas Cowboys (NFL) x 2009 2005 1,342 356 Barclays Center Brooklyn Nets (NBA)3 x 2012 2009 1,091 597 Busch Stadium St. Louis Cardinals (MLB) 2006 NA 453 0 CenturyLink Field Seattle Seahawks (NFL) x 2002 1999 501 235 2000 474 Chase Center Golden State Warriors (NBA) 2019 NA 1,000 0 Chesapeake Energy Oklahoma City Thunder (NBA) 2002 NA 124 0 Arena 20081 NA 141 0 Citi Field New York Mets (MLB) x 2009 2006 1,051 680 2009 96 Citizens Bank Park Philadelphia Phillies (MLB) x 2004 20015 607 160 Comerica Park Detroit Tigers (MLB) x 2000 1997 436 134 Empower Field Denver Broncos (NFL) x 2001 1999 567 368 FedExForum Memphis Grizzlies (NBA) x 2004 2002 331 341 Fiserv Forum Milwaukee Bucks (NBA) x 2018 2016 524 169 Ford Field Detroit Lions (NFL) x 2002 1997 599 268 Gila River Arena Arizona Coyotes (NHL) x 2003 2002 299 56 2003 211 Gillette Stadium New England Patriots (NFL) 2002 NA 452 0 Globe Life Field Texas Rangers (MLB) x 2020 2018 1,100 465 Golden 1 Center Sacramento Kings (NBA) 2016 NA 582 0 Great American Cincinnati Reds (MLB) x 2003 20006 395 280 Ball Park Heinz Field Pittsburgh Steelers (NFL) x 2001 19997 397 88 Kauffman Stadium Kansas City Royals (MLB) x 20091 20064 292 179 Lambeau Field Green Bay Packers (NFL) x 20031 2001 402 151 Levi’s Stadium San Francisco 49ers (NFL) 2014 NA 1,375 0 Lincoln Financial Philadelphia Eagles (NFL) x 2003 20015 697 160 Field 176 National Tax Journal

Table 3 (Continued) Descriptive Data

(1) (2) (3) (4) (5) (6) (7) Use of Tax- Tax- Total Exempt Exempt Year of Cost of Municipal Municipal Year Bond Stadium Bonds Issued Stadium Team (League) Bonds Completed Issuance ($Million) ($Million) Little Caesars Detroit Red Wings (NHL) x 2017 2014 882 264 Arena Lucas Oil Stadium Indianapolis Colts (NFL) x 2008 2005 838 513 2007 255 2008 64 Marlins Park Miami Marlins (MLB) x 2012 2009 6929 479 2010 1759 Mercedes-Benz Atlanta Falcons (NFL) x 2017 2015 1,635 220 Stadium Mercedes-Benz New Orleans Saints (NFL) x 20061 2006 23010 50 Superdome MetLife Stadium New York Jets/Giants (NFL) 2010 NA 1,838 0 Miller Park Milwaukee Brewers (MLB) x 2001 1996 566 234 1997 91 1999 63 Minute Maid Park Houston Astros (MLB) x 2000 1998 364 242 Nationals Park Washington Nationals (MLB) x 2008 2006 806 472 Nationwide Arena Columbus Blue Jackets 2000 NA 255 0 (NHL) NRG Stadium Houston Texans (NFL) x 2002 2000 490 448 Oracle Park San Francisco Giants (MLB) 2000 NA 519 0 Paul Brown Cincinnati Bengals (NFL) x 2000 1998 662 529 Stadium 20006 70 Petco Park San Diego Padres (MLB) x 2004 2002 597 236 PNC Park Pittsburgh Pirates (MLB) x 2001 19997 305 88 PPG Paints Arena Pittsburgh Penguins (NHL) x 2010 2007 369 378 Prudential Center New Jersey Devils (NHL) x 2007 2004 453 266 SoFi Stadium Los Angeles Rams/Chargers 2020 NA 4,963 0 (NFL) Soldier Field Chicago Bears (NFL) x 20031 2001 860 564 Spectrum Center Charlotte Hornets (NBA) x 2005 2003 333 242 State Farm Arizona Cardinals (NFL) x 2006 2003 565 302 Stadium 2005 68 SunTrust Park Atlanta Braves (MLB) 2017 NA 636 0 Target Field Minnesota Twins (MLB) x 2010 2007 637 181 2008 223 T-Mobile Arena Vegas Golden Knights (NHL) 2016 NA 391 0 Toyota Center Houston Rockets (NBA) x 2003 2001 320 362 Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 177

Table 3 (Continued) Descriptive Data

(1) (2) (3) (4) (5) (6) (7) Use of Tax- Tax- Total Exempt Exempt Year of Cost of Municipal Municipal Year Bond Stadium Bonds Issued Stadium Team (League) Bonds Completed Issuance ($Million) ($Million) U.S. Bank Stadium Minnesota Vikings (NFL) x 2016 2014 1,107 489 Xcel Energy Center Minnesota Wild (NHL) 2000 NA 247 0 Yankee Stadium New York Yankees (MLB) x 2009 2006 1,9859 1,171 2007 2879 2009 302 Total 43 42,248 16,688

Notes: Estimates are in 2018 dollars. 1 Renovation. 2 Shared with the Dallas Stars (NHL). 3 Shared with the New York Islanders (NHL). 4 Bond split 60/40 between Arrowhead Stadium and Kauffman Stadium. 5 Bond split 80/20 between Citizens Bank Park and Lincoln Financial Field. 6 Bond split 50/50 between Great American Ball Park and Paul Brown Stadium. 7 Bond split 50/50 between Heinz Field and PNC Park. 8 This is likely an underestimate and reflects only the bonds issued by the City of Detroit; a substantial amount of bonds (on the order of $100 million) are believed to have been issued by Wayne County and are missing from our data set. 9 Includes parking improvements. 10 Includes only the cost of repairs after Hurricane Katrina in 2006 and excludes the cost of subsequent remodeling from 2008 to 2010. Sources: Authors’ calculations; official bond documentation; Moody’s Investors Service/Bloomberg; Anderson (2018); Baade and Matheson (2012); Long (2012); see Appendix A and Table A1.

Note that the estimated subsidy value is not in precise proportion to the amount of the costs financed by tax-exempt bonds because the former is also a function of the term structure of the bonds and the interest rate spread at the time of the issuance. For example, construction of U.S. Bank Stadium, which opened in 2016 for the NFL’s Minnesota Vikings, was financed with $392 million in tax-exempt bonds issued in 2014 ($489 million in 2018 dollars) but has a federal subsidy estimate of only about 10 percent of the principal amount. Soldier Field, which was renovated in 2003 for the NFL’s Chicago Bears, was funded with $399 million in tax-exempt bonds ($564 million in 2018 dollars) but has a federal subsidy estimate of close to 40 percent of the principal amount. The different subsidy amounts are partly due to dif- ferences in the interest rate spread between when the Soldier Field bonds were issued (2.13 percentage points) and when the U.S. Bank Stadium bonds were issued (0.62 percentage point). They are also due to the different term structures of the bonds, 178 National Tax Journal

Figure 3 Subsidy and Revenue Loss Estimates Using 3 Percent Discount Rate

250

200

150

100 Revenue loss ($Million)

0 050100 150 200250 Subsidy ($Million)

Notes: Estimates are in 2018 dollars. Yankee Stadium is excluded as an outlier. See Table B1 for the data underlying this figure. Sources: Authors’ calculations; official bond documentation; Moody’s Investors Service/Bloom- berg; Board of Governors of the Federal Reserve System (2016); see Appendix A.

since the Soldier Field bonds are heavily weighted to come due far in the future and the U.S. Bank Stadium bonds will be paid off in installments that slowly escalate in amount. The first row of Table 4 reproduces the last row of Table B1, reporting the total subsidy and revenue losses across all the stadiums using average yields for 20-year municipal bonds rated Aa by Moody’s Investors Service compared to average yields for seasoned corporate bonds rated Aa by Moody’s. We find that for the 57 stadiums in our data set, the total discounted value of the federal tax subsidy is $3.6 billion (using a 3 percent discount rate) or $3.0 billion (using a 5 percent discount rate). Given the inefficiency of the tax exemption, the lost revenue to the federal government exceeds the subsidy Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 179

Loss 3,504 3,405 3,358 3,504 3,099 3,358 Revenue ($Million) Discounted (5%) Federal

Loss 4,300 4,179 4,120 4,300 3,805 4,120 Revenue ($Million) Discounted (3%) Federal 2,959 2,712 2,751 2,799 2,215 2,296 ($Million) Discounted (5%) Subsidy

3,630 3,328 3,376 3,433 2,717 2,815 ($Million) Discounted (3%) Subsidy

Loss 6,165 5,998 5,907 6,165 5,463 5,907 Federal Revenue ($Million) Table 4 Table Undiscounted 5,203 4,774 4,839 4,920 3,892 4,029 Subsidy ($Million) Undiscounted

Results Using Alternative Indexes for the Interest Rate Spread the Interest for Indexes Alternative Results Using Taxable Bond Index Taxable Aa-rated Moody’s corporate bond index Moody’s Aa-rated Moody’s corporate bond index Moody’s Aaa-rated Moody’s corporate bond index Moody’s Aa-rated Moody’s corporate bond index Moody’s Aaa-rated Moody’s corporate bond index Moody’s Aaa-rated Moody’s corporate bond index

Nontaxable Bond Index Aa-rated 20-year Moody’s municipal bond average Bond Buyer 20-year municipal bond index Moody’s Aaa-rated 20-year Moody’s municipal bond average Standard & Poor’s Standard & Poor’s high-grade municipal bonds Bond Buyer 20-year municipal bond index Standard & Poor’s Standard & Poor’s high-grade municipal bonds Notes: Estimates are in 2018 dollars. The indexes used in rows 3 and 5 result in some annual estimates of negative spreads. For those years, we set the spread spreads. For those years, we set the of negative estimates annual in some used in rows 3 and 5 result The indexes in 2018 dollars. are Notes: Estimates to zero and the ratio of market-clearing tax rate average municipal bondholders one. Advisers (2005, 2015, 2018); Board of Governors Bond Buyer; Council of Economic Investors Service/Bloomberg; Moody’s calculations; Authors’ Sources: of the Federal Reserve System (2016). 180 National Tax Journal amounts, resulting in an estimated revenue loss of $4.3 billion (using a 3 percent discount rate) or $3.5 billion (using a 5 percent discount rate). The other rows of Table 4 compute estimates using alternative measures of bond yields for the municipal bonds and the comparable taxable bonds. The findings are robust with respect to the indexes used.30 Table 5 shows the number of stadiums constructed or renovated since 2000 by each major sports league, the number financed by tax-exempt bonds, the average cost of the stadiums, the average financed by tax-exempt bonds, and the average present-value subsidies computed at both 3 and 5 percent discount rates (all in millions of 2018 dollars). NFL stadiums had the highest average cost at $1 billion,31 but MLB stadiums had the highest average amount financed by tax-exempt bonds, at $466 million. The highest subsidies went to MLB, with an estimated value of $112.4 million computed at a 3 percent discount rate and $95.0 million computed at a 5 percent discount rate. The final column shows the value of the subsidy (3 percent discount rate) per $100 million in cost. The NBA and MLB each received on average $16.3 million per $100 million in costs. Among stadiums funded at least in part by tax-exempt bonds, NBA arenas received the most tax-exempt financing as a share of total costs (67 percent on average). NFL stadiums received the least tax-exempt bonds as a share of total costs (56 percent on average). This is partly due to the relative size and cost of NBA and NHL arenas compared to NFL stadiums. As shown in Table 5, NFL stadiums in our data set cost roughly twice as much as NBA and NHL arenas; and NFL stadiums in our data set have an average capacity of 70,700 people, compared to 19,100 for NBA and NHL arenas and 41,800 for MLB stadiums.

VI. DISCUSSION In this section, we briefly discuss reform options and some broader implications of financing professional sports stadiums through the use of tax-exempt municipal bonds.

A. Reform Options Although the magnitude of the federal subsidies for stadium construction is relatively small compared to the whole of the federal budget deficit, the ultimate question one should ask in evaluating policy is: Should the federal government be subsidizing the construction of professional sports stadiums in the first place? Our answer to this question is no. Further, it is evident to us that Congress intended to do away with tax-exempt financing for stadium construction with the Tax Reform Act of 1986. But municipalities

30 The bottom two rows are the methodologies used by the Joint Committee on Taxation (2008, 2012a, 2012b, 2013). 31 Excluding SoFi Stadium the average NFL stadium cost is $813.3 million. Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 181 -

11.8 13.9 10.7 16.3 16.3 in Costs Average Average ($Million) (3%) Subsidy Value per $100M Value

81.5 45.5 57.0 66.7 95.0 Subsidy Average Average ($Million) Discounted (5%)

112.4 100.0 55.8 69.5 75.7 Subsidy Average Average ($Million) Discounted (3%) 395.5 322.2 305.1 399.5 465.8 ($Million) Exempt Bonds Average Amount Average Financed by Tax- Table 5 Table

Cost 741.2 509.0 507.1 672.9 Average 1,001.9 Summary League by Statistics ($Million) 43 6 8 17 14 Bonds Number Financed by Tax-Exempt Tax-Exempt

57 9 12 21 17 New or Stadiums Renovated Number of Notes: Dollar estimates are in 2018 dollars. Two arenas are shared between NBA and NHL teams and are counted in these statistics under both NBA and under both NBA and are counted in these statistics teams and NHL arenas are shared between NBA Two are in 2018 dollars. estimates Notes: Dollar The estimates in the final four columns exclude stadiums with no tax-exempt financing. NHL. Service/Bloom Investors Moody’s (2012); Long (2012); Matheson and Baade (2018); Anderson documentation; bond official calculations; Authors’ Sources: A. Appendix Board of Governors the Federal Reserve System (2016); see berg; Total or average Total NHL NBA NFL MLB League 182 National Tax Journal have exploited a loophole in the law that was never intended to be opened: intentional failure of the private payments or security tests to receive eligibility for tax-exempt funding for stadium construction. In this section, we offer reform options that would close this loophole, thereby ending tax-exempt financing for stadiums. We also consider some second-best alternatives to mitigate inefficiencies associated with continued use of tax-exempt financing. Our preferred reform would be to simply eliminate the authority for state and local governments to issue federally tax-exempt governmental bonds for stadium construction. This could be done in one of two ways. The most direct approach would be to plainly specify that interest earned on municipal bonds used to construct professional sports stadiums is not excludable from federally taxable income. Specifically, this approach would amend the Code of Federal Regulations, title 26, section 103(b), by adding professional stadium bonds to the list of exceptions of state and local bonds whose interest is exempt from federal taxation. Two recently proposed bills — the Tax Cuts and Jobs Act of 2017 and the No Tax Subsidies for Stadiums Act of 2019 — prohibit “professional stadium bonds” (defined as any bond issued whose proceeds are used to finance a facility used at least 5 days during the year as a stadium for professional sports games or training) from receiving tax-exempt status.32 A similar but less direct approach would be to specify that any bond used to construct a professional sports stadium must be treated as meeting the private payment or security test. Recall that the Tax Reform Act of 1986 categorized a bond as private if it met the private business use test and the private payment or security test. Eliminating the private payment and security tests for stadium financing would mean that bonds to finance stadiums would be classified as taxable private activity bonds only if more than 10 percent of the facility would be for private business use, which undoubtedly would be the case. This approach, recommended by the Joint Committee on Taxation (2005) and the U.S. Department of the Treasury (2015, 2016), would amend the Code of Federal Regulations, title 26, section 141(b), by specifying that professional stadium bonds are to be treated as meeting the private payment and security tests.33 One potential long-term problem with this approach is that it leaves more space for loopholes than our preferred approach. Suppose that bonds used to construct professional sports stadiums were treated as meeting the private payment and security tests. General equilibrium effects of enacting such a law might mean municipalities and the leagues would find a way to intentionally fail the private business use test instead. Think, for example, of the NFL’s Green Bay Packers, currently the only nonprofit, community-owned major

32 Section 3604 of H.R. 1 — the Tax Cuts and Jobs Act of 2017 — as originally proposed in the House contained this provision. The final version of the bill that became P.L. 115-97 — An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 — did not contain the provision. Despite its bipartisan support, the provision was reportedly removed at the request of President Donald Trump. Rubin, Richard, and Siobhan Hughes, “GOP Is Poised to Pass Sweeping Tax Overhaul,” Wall Street Journal, December 15, 2017. 33 Two bills proposed in 2017, the No Tax Subsidies for Stadiums Act and the Eliminating Federal Tax Subsidies for Stadiums Act, took this approach. Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 183 league professional sports team in the United States. If all NFL franchises shifted to this community-owned model, would NFL games cease to be considered private activity? Granted, this would be a dramatic shift in the professional sports ownership model, but this or something similar is not unreasonable given enough legal creativity. Hence, our slight preference is for the more direct approach. We believe these two approaches to be both politically feasible and effective in addressing the problem of tax-exempt financing for stadiums. An alternative approach, which is arguably too broad, would be to change a single word in the Code of Federal Regulations: and to or. Specifically, a bond would be treated as a private activity bond (and, hence, not eligible for tax-exempt status) if it met either the private business use test or the private payment or security test. This approach, which changes the legal definition of private activity, would, in addition to barring the use of tax-exempt financing for professional sports stadiums, also bar their use for other activities that meet only one of the two parts of the private business test. However, certain private activities that Congress deems worthy of federal subsidies are already designated as qualified private activities, so the status quo might not change much for projects other than stadiums. The following reform options we consider to be second best, but we discuss them briefly for completeness. Reforms could seek to limit rather than eliminate the federal tax subsidy for stadium financing. Current law allows tax exemption for bonds used to finance any of a list of qualified private activities (stadium financing was removed from the list after the Tax Reform Act of 1986), with the total volume of tax-exempt qualified private activity bonds capped for each state. The federal subsidy could be curtailed by denying governmental bond financing for stadiums while allowing stadium financing through tax-exempt qualified private activity bonds.34 As discussed by Lathrope (1997) and Zimmerman (1997, 2008), this policy change would have several effects, including the following: forcing states to choose between federal tax subsidies for stadium financing versus for other qualified financing under the volume cap; allowing state and local governments to use taxes directed at the beneficiaries of the stadiums to finance the tax-exempt bonds; and eliminating the tax subsidy for stadium luxury boxes, since the law does not allow proceeds from tax-exempt qualified private activity bonds to finance such things. Additionally, current law requires that such bonds be expressly approved either by a voter referendum or by an elected representative after a public hearing following reasonable notice to the public, which would increase the transparency of stadium deals that benefit from tax-exempt financing (Internal Revenue Service, 2016b). Broader reforms could deal with the inefficiencies of tax-exempt bond financing in general, not just stadium financing, which would allow the federal government to maintain the current subsidy incentives but at a lower cost to the federal budget. Tax-exempt bonds are an economically inefficient means of providing a subsidy. This inefficiency could be eliminated by changing the tax exemption to a tax credit, either in the form of tax-credit bonds or direct-pay bonds. A tax-credit bond provides a credit against the

34 Gans (2010) proposes a compromise, in which only renovations to existing stadiums could be considered qualified private activity and whereby stadiums may only be renovated every 20 years. 184 National Tax Journal bondholder’s overall federal income tax liability. In addition to eliminating the inefficiency associated with tax-exempt bonds, tax-credit bonds also have the advantage of flexibility, in that the amount of the tax credit could vary depending on the purpose for which the bond is issued (ideally setting the federal subsidy to the amount that is economically justified on public-good grounds). A direct-pay bond provides a credit to the bond issuer in an amount equal to a portion of each of the interest payments the issuer makes to the bondholders. In addition to eliminating the inefficiency associated with tax-exempt bonds, direct-pay bonds — since they directly subsidize interest payments — would be subject to the federal government’s annual appropriations limit. Tax-exempt municipal bonds are outside of the appropriation process, reducing their transparency and limiting Congress’s control over their allocation.35

B. Broader Implications of Tax-Exempt Status for Stadium Bonds Although a full analysis is beyond the scope of this paper, some implications of tax- exempt status for stadium bonds are worth mentioning. Economic theory would suggest that a reduction in the cost of borrowing by state and local governments, through the exemption from federal taxation of interest earned on municipal bonds, would increase the demand for stadium construction. The magnitude of this effect would be captured by the price elasticity of demand for stadium construction. Noto and Zimmerman (1984) and Zimmerman (1991) estimate how much each dollar of the federal deduction for state and local taxes translates to increases in state and local spending on public goods and services. This deduction provides financial assistance to state and local taxpayers by both reducing the cost of state and local tax dollars (substitution effect) and increasing after-tax income (income effect). Both the lower price and higher income cause taxpayers to demand a higher level of state and local services and to increase their willingness to pay higher state and local taxes. The extent of this increase in spending and taxes depends on the sensitivity of itemizers’ demand for public services to changes in their tax price and income. Noto and Zimmerman (1984) and Zimmerman (1983) estimate the uncompensated price elasticity of demand for public goods to be about –0.5, which implies state and local tax deductibility increases the share of spending financed with deductible taxes by half the percentage reduction in price. Similar estimates have not been made for tax-exempt bonds, since no reliable estimates of the price elasticity of demand for state and local government capital formation exist. Surely state and local governments’ demand for capital formation is not perfectly elastic, neither is spending on capital formation likely to increase by the full amount of forgone federal tax revenue. Hassett and Hubbard (1997) survey the empirical research on the sensitivity of business investment to user cost and report estimates for the user- cost elasticity of the capital stock of between –1.0 and –0.5, and Chirinko, Fazzari, and

35 For more detailed discussions of tax-credit bonds and direct-pay bonds (also known as a taxable bond option), see Congressional Budget Office (2004), Joint Committee on Taxation (2012b), and Congressional Budget Office and Joint Committee on Taxation (2009). Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 185

Meyer (1999) estimate the user-cost elasticity of capital formation at roughly –0.25. This suggests that the sensitivity of the demand for new stadiums to changes in the cost of borrowing is likely to be small. For example, using the 2017 Aa interest rate spread of 3.83 and 3.28 percent and Chirinko, Fazzari, and Meyer’s (1999) elasticity estimate of –0.25 implies a 4.2 percent decrease in the demand for stadium construction following the elimination of tax-exempt financing.

VII. CONCLUSIONS Proponents of government subsidies for sports stadiums typically justify them on the grounds that stadiums provide spillover gains to the local economy. The evidence for these spillover gains is weak. Academic studies consistently find no discernible positive relationship between sports facility construction and local economic development, income growth, or job creation. Even if one believes, contrary to the empirical evidence, that the spillover benefits to the local economy justify subsidies, there remains very weak economic justification for federal subsidies for sports stadiums. Under current tax law, stadium financing is eligible for tax-exempt status, which amounts to an implicit federal subsidy. What’s more, current tax law provides a perverse incentive for a federal government match for state and local government subsidies for stadiums, while at the same time providing a disincentive for local governments to finance the stadiums with taxes that largely fall on those receiving the benefits of the stadiums. In this paper, we examine the financing for all newly constructed or majorly renovated stadiums in the United States since 2000 for MLB, the NFL, the NBA, and the NHL. We find that for these 57 stadiums, the discounted value of the federal tax subsidy is $3.6 billion (using a 3 percent discount rate) or $3.0 billion (using a 5 percent discount rate). In addition, because of the inefficiency of the tax exemption, the lost revenue to the federal government exceeds the subsidy amounts, resulting in an estimated total revenue loss of $4.3 billion (using a 3 percent discount rate) or $3.5 billion (using a 5 percent discount rate). The simplest and most direct way to stop the use of tax-exempt municipal bonds to finance professional sports stadiums would be to disallow the interest on such bonds from being federally exempt from income taxation or to eliminate the private payment and security tests for such bonds, both of which would eliminate the authority of state and local governments to issue federally tax-exempt governmental bonds for stadium construction. Short of that, an alternative approach would limit the federal tax subsidy by classifying stadium bonds as qualified private activity bonds, which would make them subject to a state-wide volume cap, place additional restrictions on their use, and allow financing of the bonds through taxes directed at the beneficiaries of the stadiums.

ACKNOWLEDGMENTS The authors are grateful to Stacy Dickert-Conlin, William G. Gale, William Gentry, Harvey S. Rosen, Clifford Winston, Dennis Zimmerman, an anonymous referee, and participants at the Tax Economists Forum for helpful comments. 186 National Tax Journal

DISCLOSURE The authors received financial support from the Laura and John Arnold Foundation.

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APPENDIX A: DATA All information about specific stadium bonds comes from official bond issuance documentation, the majority of which is hosted on the Electronic Municipal Market Access website at emma. msrb.org. A few bonds were not available on the Electronic Municipal Market Access website and were instead obtained directly from the issuers. Specifically, the 1999 bond issuance shared jointly with Heinz Field and PNC Park was obtained using a right-to-know request and was received directly from the Sports & Exhibition Authority; the 2002 bond issuance used to fund Petco Park was obtained from the website for the City of San Diego, www.sandiego.gov; the 1997 bond issuance used to fund Ford Field was obtained through email and phone correspondence with a member of the Debt Management Division of the City of Detroit. All official bond issuance documentation is available in PDF form upon request from the authors. Precise estimates for the total costs for the stadium were more difficult to come by than the data on the bonds used to finance them. We collected the cost data primarily from the following websites, and where there were discrepancies on the costs of a specific stadium, we attempted to resolve them by consulting other sources, such as online local newspaper articles.

• Sports Facility Reports (Anderson, 2018): MLB: https://law.marquette.edu/assets/sports-law/MLB.2018.pdf NBA: https://law.marquette.edu/assets/sports-law/NBA.2018.pdf NFL: https://law.marquette.edu/assets/sports-law/NFL.2018.pdf NHL: https://law.marquette.edu/assets/sports-law/NHL.2018.pdf • ballparks.com: MLB: www.ballparks.com/baseball NBA: basketball.ballparks.com NFL: football.ballparks.com NHL: hockey.ballparks.com • Miscellaneous sources: MLB: www.ballparksofbaseball.com NBA: www.insidearenas.com NFL: www.stadiumsofprofootball.com NFL: cbsminnesota.files.wordpress.com/2011/12/nfl-funding-summary-12-2-11.pdf

The standard, modern source of information on the cost of stadiums and the size of local subsidies comes from the work of Long (2012). Baade and Matheson (2012) also compile stadium costs. For the most part, our estimates of stadium costs coincide with those of Long (2012), Baade and Matheson (2012), and Anderson (2018). Certain exceptions are listed in Table A1 (all dollar values are nominal). Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 191 - - - Associated Press Explanation http://www.ballparkauthority.com/Budget. Originally planned to cost $1 billion; the final was $1.7 billion, which includes the cost of a $320 million parking struc ture. Bagli (2008a, 2008b); Gralla (2008). Includes the cost of stadium ($435 million) and infrastruc ture ($120 million). html Includes the cost of stadium ($395 million), site improve ments ($42 million), and land ($18 million). (2006); Reynolds (2015). https://www.lincolnfinancialfield.com/stadium-facts/ Originally planned to cost $525 million; the final was $634 million, which includes the cost of a $94 million parking (2009); Byrnes (2013); Smiley Wright Hamacher and facility. (2016). Originally planned to cost $631 million; the final was $693 (2009); Cranor (2013). Washington million. NBC4 Originally planned to cost $645 million; the final was $900 million. Bagli (2008a); Baumer (2010); Brown (2015). Robbins (2012); Thomas (2015); Vamburkar (2019). Vamburkar Thomas (2015); Robbins (2012); 544 267 285 525 524 600 637 1,300 ($Million) Baade and Matheson (2012) Table A1 Table NA NA 611 435 395 360 575 1,308 ($Million) Long (2012) Explanations of Certain Cost Estimates in Table 3 Table in of Certain Estimates Explanations Cost 611 545 515 455 512 688 1,100 1,000 ($Million) Anderson (2018) 555 634 693 455 512 900 1,700 1,000 ($Million) Our Estimate Yankee Stadium Yankee Target Field Target Marlins Park Nationals Park State Farm Stadium Lincoln Financial Lincoln Field Stadium Barclays Center Citi Field 192 National Tax Journal

REFERENCES FOR TABLE A1

Associated Press, 2006. “U. of Phoenix Buys Naming Rights to Cardinals Stadium.” Associated Press, September 26. Bagli, Charles V., 2008a. “As Stadiums Rise, So Do Costs to Taxpayers.” New York Times, November 4. Bagli, Charles V., 2008b. “As Stadiums’ Costs Rise, City Agrees to New Bond Offerings.” New York Times, December 8. Baumer, Kevin, 2010. “The 10 Shiniest New Sports Stadiums.” Business Insider, October 27. Brown, Maury, 2015. “The Real World Series Winner May Have Been Architecture Firm, Populous.” Forbes, November 2. Byrnes, Mark, 2013. “More Evidence That Marlins Park Was a Horrible Deal for Miami.” Vox, May 10. Cranor, David, 2013. “Was Nationals Park Worth It for DC?” Greater Greater Washington, August 27. Gralla, Joan, 2008. “NY Yankees Stadium Runs 30 Percent over Budget: S&P.” Reuters, October 23. Hamacher, Brian, and Todd Wright, 2009. “Play Ball! Marlins Stadium Wins Approval.” NBC 6 South Florida, July 14. NBC4 Washington, 2009. “You’re Welcome: Final Costs for Nationals Park to be $693M.” NBC4 Wash- ington, July 14. Reynolds, Ana, 2015. “12 Facts about University of Phoenix Stadium.” AZ Central, January 24. Robbins, Liz, 2012. “In Brooklyn, Bracing for Hurricane Barclays.” New York Times, September 21. Smiley, David, 2016. “SEC Closes Miami Marlins Stadium Investigation; Charges Unlikely.” Miami Herald, February 19. Thomas, Brad, 2015. “What’s Barclays Center Worth?” Forbes, September 11. Vamburkar, Meenal, 2019. “Alibaba’s Joseph Tsai in Talks to Buy Barclays Center, Nassau Coliseum: Re- port.” The Real Deal, April 1. Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 193

6 0 0 0 0 20 18 77 53 36 60 74 40 56 93 80 39 98 179 136 (8) ($Million) Revenue Loss Discounted (5%)

7 0 0 0 0 24 21 93 58 43 73 93 47 66 99 47 119 226 107 170 (7) ($Million) Revenue Loss Discounted (3%)

6 0 0 0 0 11 18 76 47 34 60 48 38 49 86 60 34 49 155 103 (6) Subsidy ($Million) Discounted (5%)

7 0 0 0 0 21 13 92 52 41 72 60 44 58 99 74 41 60 196 129 (5) Subsidy ($Million) Discounted (3%) 9 0 0 0 0 32 27 67 60 60 87 65 128 100 347 139 136 142 253 169 (4) ($Million) Undiscounted Revenue Loss Table B1 Table 9 0 0 0 0 27 18 60 57 89 56 76 58 85 127 100 301 125 106 192 (3) Subsidy ($Million) Undiscounted Subsidy and Revenue Loss Estimates Loss Subsidy and Revenue 1 2 (2) Team (League) Team Arizona Coyotes (NHL) Detroit Lions (NFL) Milwaukee Bucks (NBA) Memphis Grizzlies (NBA) Denver Broncos (NFL) Detroit Tigers (MLB) Tigers Detroit Philadelphia Phillies (MLB) Brooklyn Nets (NBA) Mets (MLB) York New Dallas Cowboys (NFL) Thunder (NBA) Oklahoma City San Antonio Spurs (NBA) San (NBA) Warriors Golden State Kansas City Chiefs (NFL) Seattle Seahawks (NFL) Dallas Mavericks (NBA) Orlando Magic (NBA) St. Louis Cardinals (MLB) Miami Heat (NBA) Las Vegas Raiders (NFL) Vegas Las Gila Arena River Ford Field Fiserv Forum FedExForum Empower Field Comerica Park Citizens Bank Park Barclays Center Citi Field AT&T Stadium AT&T Chesapeake Arena Energy AT&T Center AT&T Chase Center Arrowhead Stadium CenturyLink Field American Airlines American Center Stadium Amway Center Busch Stadium American Airlines Arena Airlines American (1) Allegiant Stadium APPENDIX B: SUBSIDY AND REVENUE LOSS ESTIMATES FOR EACH STADIUM EACH FOR ESTIMATES LOSS REVENUE AND SUBSIDY B: APPENDIX 194 National Tax Journal

0 0 0 0 0 0 57 38 59 93 67 10 31 43 60 32 37 38 69 112 160 121 102 182 122 (8) ($Million) Revenue Loss Discounted (5%)

0 0 0 0 0 0 69 47 72 83 12 37 52 73 38 44 47 85 113 195 146 124 139 226 152 (7) ($Million) Revenue Loss Discounted (3%)

0 0 0 9 0 0 0 56 34 59 82 59 90 85 14 21 60 31 33 34 35 113 114 143 139 (6) Subsidy ($Million) Discounted (5%)

0 0 0 0 0 0 11 68 42 72 73 16 26 72 37 38 42 43 110 173 136 100 106 172 142 (5) Subsidy ($Million) Discounted (3%) 0 0 0 0 0 0 95 68 17 51 75 51 58 68 102 272 201 159 120 173 204 329 100 222 120 (4) ($Million) Undiscounted Revenue Loss 0 0 0 0 0 0 94 60 14 23 37 51 51 60 60 101 243 189 140 106 153 155 251 100 208 (3) Subsidy ($Million) Undiscounted (2) Team (League) Team Pittsburgh Penguins (NHL) Pittsburgh Pittsburgh Pirates (MLB) Pittsburgh San Diego Padres (MLB) Cincinnati Bengals (NFL) San Francisco Giants (MLB) Houston Texans (NFL) Houston Texans Columbus Blue Jackets (NHL) Washington Nationals (MLB) Washington Houston Astros (MLB) Milwaukee Brewers (MLB) New York Jets/Giants (NFL) York New New Orleans Saints (NFL) Miami Marlins (MLB) Atlanta Falcons (NFL) Indianapolis Colts (NFL) Detroit Red Wings (NHL) Wings Detroit Red Philadelphia Eagles (NFL) San Francisco 49ers (NFL) Green Bay Packers (NFL) Kansas City Royals (MLB) Pittsburgh Steelers (NFL) Pittsburgh Cincinnati Reds (MLB) Sacramento Kings (NBA) Texas Rangers (MLB) Texas New England Patriots (NFL) PPG Paints Arena PNC Park Petco Park Paul Brown Stadium Oracle Park NRG Stadium Nationwide Arena Nationwide Nationals Park Minute Maid Park Miller Park MetLife Stadium Mercedes-Benz Superdome Marlins Park Mercedes-Benz Stadium Lucas Oil Stadium Little Caesars Arena Lincoln Financial Field Levi’s Stadium Levi’s Lambeau Field Kauffman Stadium Kauffman Heinz Field Great American Ball Park Great Golden 1 Center Stadium Globe Life Field Subsidy and Revenue Loss Estimates Loss Subsidy and Revenue B1 (Continued) Table (1) Gillette Stadium Tax-Exempt Municipal Bonds and the Financing of Sports Stadiums 195

0 0 0 0 57 95 80 82 57 52 408 174 3,504 (8) ($Million) Revenue Loss Discounted (5%)

0 0 0 0 68 96 70 63 118 521 100 218 (7) 4,300 ($Million) Revenue Loss Discounted (3%)

0 0 0 0 28 95 69 64 46 40 358 173 (6) 2,959 Subsidy ($Million) Discounted (5%)

0 0 0 0 34 83 78 56 49 118 456 217 3,630 (5) Subsidy ($Million) Discounted (3%) 0 0 0 0 93 99 91 810 174 133 139 323 (4) 6,165 ($Million) Undiscounted Revenue Loss 0 0 0 0 47 80 71 115 708 174 108 322 (3) 5,203 Subsidy ($Million) Undiscounted (2) Team (League) Team

New York Yankees (MLB) Yankees York New Minnesota Wild (NHL) Minnesota Wild Minnesota Vikings (NFL) Minnesota Vikings Houston Rockets (NBA) Vegas Golden Knights (NHL) Vegas Minnesota Twins (MLB) Minnesota Twins Atlanta Braves (MLB) Arizona Cardinals (NFL) Charlotte Hornets (NBA) Chicago Bears (NFL) Los Angeles Rams/Chargers (NFL) Angeles Rams/Chargers Los New Jersey Devils (NHL) Shared with the Dallas Stars (NHL). Islanders (NHL). York Shared with the New Notes: Estimates are in 2018 dollars. Total Yankee Stadium Yankee Xcel Energy Center Xcel Energy U.S. Bank Stadium Toyota Center Toyota T-Mobile Arena T-Mobile Target Field Target SunTrust Park SunTrust State Farm Stadium Spectrum Center Soldier Field Stadium Sources: Authors’ calculations; official bond documentation; Moody’s Investors Service/Bloomberg; Board of Governors of the Federal Reserve System (2016); see Appendix A. Appendix Board of Governors the Federal Reserve System (2016); see Investors Service/Bloomberg; calculations; official bond documentation; Moody’s Authors’ Sources: SoFi Stadium Subsidy and Revenue Loss Estimates Loss Subsidy and Revenue B1 (Continued) Table (1) 1 2 Prudential Center