Actions Against Government Subsidies To Build Professional Sports Stadiums
Tax-generated government subsidies for building professional sports stadium have sparked controversy nationwide over decades. Public funding occur both at the level of state governments and federal government which may involves generous amount that reach billions of dollars. Proponents claim that such initiatives are a sound investment for municipal governments, increasing economic growth and tax revenue. Nevertheless, a large number of academic studies have found that government subsidising sports stadium indeed has little impact on the local economies and instead facing a very high opportunity cost where the subsidy can be spent in the infrastructure elsewhere that can generate higher social marginal benefit. Hence, subsidising professional sports teams with tax revenue to build or renovate stadiums is not in the best interest of the society. Alternative actions should be adopted to eliminate the waste of tax revenue as public resource. With the approaching senate election on 6th of November, you should take actions against the government subsidies, which is considered the most concerned problem for taxpayers, both in the senate and to the New York City Council in order to gain you seat and support. RecommendationsI would recommend you to take option 1, which is to deduct the stadium budget from the city council as the most viable option.
Background
Since the 1980s under the administration of president Ronal Reagan, states and local government were encouraged to provide public funds for the construction of professional sports stadiums. Between 1990 and 2010, 84 new facilities were built for the 122 teams playing in the four largest professional sports leagues. In particular of National Football League, the $1. 1 billion U. S. Bank Stadium for the Minnesota Vikings, which held Super Bowl 2018, was built with $498 million subsidy from state and city governments.
Current system of stadium subsidy
There are two primary ways that local governments facilitate the construction of a stadium. The first, and most commonly used method, is a direct subsidy. This involves a city promising a certain amount of tax revenue to go towards the construction or renovation of a stadium. Grants of land to build the stadiums are considered equivalent. A 2005 study of all sports stadiums and facilities in use by the four major leagues from 1990 to 2001 calculated a total public subsidy of approximately $24 billion in 2018 dollars. The average annual subsidy during that period was $2. 2 billion in 2018 dollars for all 99 facilities included in the study, with an average of $22. 8 million in 2018 dollars per facility annually. Another primary method of stadium subsidy is through the issuance of tax-exempt municipal bonds. Since the interest earned on the municipal bonds is exempt from federal taxes, a large amount of tax revenue that would have been collected had the bonds been issued as taxable, went toward the construction of the stadium. High-income taxpayers holding the bonds receive a windfall tax break, resulting in an even greater loss of federal tax revenue than the given stadium subsidy. One notable example is Yankee Stadium which New York Yankees had it completed in 2009. The construction bill was roughly 2. 3 billion, among which nearly 1. 2 billion was financed by tax-exempt bonds issued by the city of New York. From 2000-2016, 35 other professional sports stadiums that have been financed with tax-exempt municipal bonds.
According to the findings by Alexander K Gold et al. , during the period of 2000-2016, the federal government has subsidised the sports stadium for a total of 3. 2 billions while generating a total revenue loss amounts to 3. 7 billions.
Benefits of stadium subsidy
The most prominent argument in favour of stadium subsidies root in the rationale that the stadium will help to expand the local economy through the increase in consumer spending and employment. In granting stadium subsidies, governments claim that the new or improved stadiums serve several positive externalities to the cities. Economists categorised the potential economics effects of a new stadium into direct benefits and indirect benefits. Direct benefits are defined as those direct consumption and employment as a result of the new stadium, e. g. sports ticket sales and construction jobs. Indirect benefits are attributable to the further spending and employment for increased tourism and surrounding businesses. The aggregate increase in spending and income will be taxed and will offset the stadium subsidy to a certain level. A multiplier effect on the increased spending and employment should also be taken into account. Jordan Rappaport, an economist at the Federal Reserve Bank of Kansas, estimated that this benefit is between $14 to $24 million dollars a year, which can be compounded over the life of a stadium. A potential new stadium also holds the promise of new development. As interest in the area grows, the value of existing properties is likely to improve. In a similar vein, stadium construction can be proposed as an economic-development initiative by choosing to build in a blighted or underdeveloped area. The hope is that the new economic activity will revitalize the area. Civic pride and city image are also considered as the non-quantifiable positive externalities of a new stadium or arena, which the stadium can sometimes be a symbol presenting the city to the world.
Criticisms of stadium subsidy
While with the potential economic benefits, the majority of economists believe that sports stadiums do not generate enough economic development to justify major public expense. In 2017, a survey carried out by the University of Chicago Booth School of Business indicated that 83 percent of the surveyed economists agreed that "Providing state and local subsidies to build stadiums for professional sports teams is likely to cost the relevant taxpayers more than any local economic benefits that are generated. " Critics contend that new stadiums generate little or no economic growth or increased aggregate income. Rather than increasing spending for the sports events, citizens are more likely to shift the choice of entertainment consumption and see the added sports events as a substitute for the existing entertainment events in the surrounding area given the constant consumption budget. As a result, it will add little or no increase to the aggregate consumer spending in the city therefore little increase on the sales tax revenue. Instead of using a cost-benefit analysis to interpret the economic costs and the opportunity cost of the stadium subsidies, government only make optimistic predictions about construction of potential stadiums using a benefit-only analysis.
Criticism of stadium subsidies is that the opportunity cost of the subsidy is far greater than its benefit. The huge amount of subsidy could have been better spent on other social welfares and infrastructure. Nevada's $750 million subsidy to the future Las Vegas Raiders could have provided a year's worth of schooling to 100, 000 children in Clark County, fully funded the annual salary and benefits of 6, 500 entry-level Las Vegas police officers or paid for more than six years of Nevada's state highway maintenance. Sports subsidies are a perfect example of ‘concentrated benefit and dispersed cost’. The subsidy benefits a relatively small group – mostly team owners and politicians – while costs are spread among both current and future taxpayers. Individual taxpayers have less incentive to fight hard against the policy, while the smaller group can organize more easily to campaign for the handout. Over time, the bargaining power of the sports team owners have increased in which they choose the city where the highest subsidy is offered and leave the cities in meaningless competition. Since local governments perceive the keeping of sports teams is critical to the success of their cities.
Current circumstances in New York City
New York City is considered one of the country’s most crowded market for sports stadiums and arenas, many of which have been built with sizable public assistance in the form of free land, tax breaks and subsidies. There are currently a total five stadiums and six arenas within 60 miles of midtown Manhattan, with a combined 335, 271 seats. Of the total cost of $7. 5 billion, taxpayers provided more than a third, or about $2. 75 billion. When it is not the sports season, venues are generally leased out for other events which bring revenue to make the venues economically viable.
Policy options
- Reduce the amount of subsidies from local governments
- Propose a bill to take away the tax breaks for stadium bonds.
There will always be proposals for more stadiums to be built or renovated with taxpayer backing. Therefore, the amount of subsidy should be strictly controlled. The cost of building and maintaining these facilities should be borne by the people who attend these events via their ticket purchases, and not the people of an entire state, the vast majority of whom will never set foot inside these enormously costly structures.
Sports teams are generally self-sufficient in making enough revenues to cover the costs of construction for a sports stadium. Apart from sports events ticket sales, parking revenue and luxury suites sales, stadiums can be leased out for other events. The subsidies distort the free market mechanism where market supply and demand determine the necessity of a good in the market. If subsidies are available, not only do rich owners avoid the full cost of paying for their venues, but they also get all of the appreciation in the value of their teams. And by lowering the actual cost of operation, the subsidies make it much easier for rich owners to earn a profit. We should let the market decides for the fate of a stadium. If the stadium cannot generate enough revenue to cover the cost of construction, this indicates that the stadium should not be built in the first place. Also, given the saturated market of stadiums in New York, there may be projects of infrastructure that should be given high priorities for the use of tax revenue.
Limitations: the opportunity cost of using the tax revenue elsewhere would be the revenue and sales tax generated by the stadium. Although most citizens do not attend the events, they benefit indirectly from the events to some extent as the stadium boost the economy of the city as a whole.
Gayer, Drukker, and Gold argue that the most direct way to eliminate the practice of stadiums receiving federal money toward construction is for Congress to eliminate the “private payment test” for stadiums. By doing so, any stadium used primarily for “private business use” (that is, all professional sports stadiums) would no longer be eligible to receive federal tax-exempt financing. Another approach would be to limit, rather than eliminate, the federal tax subsidy by mandating tax-exempt stadium bonds be deemed “qualified private activity bonds”, which are subject to a statewide volume cap.
Limitations: given the previously failed attempts, it may be hard to such bill to pass again. Also, there may be some political resistance since the wealthy sports team owners donate a generous amount to politicians for elections.
