Taxpayers are footing the bill for billions of dollars in NFL stadium renovations and construction.
The Tennessee Titans of the National Football League unveiled plans for a new stadium in the heart of Nashville in 2022. The 1.7 million-square-foot stadium, which can accommodate 60,000 screaming football fans, is expected to cost $2.1 billion.
The public would fund more than half of the stadium through a $500 million one-time state contribution and $760 million in revenue bonds issued by Nashville's Metropolitan Sports Authority.
Public funds diverted to assist in the construction of professional sports stadiums and arenas have cost taxpayers $4.3 billion since 2000. While the NFL and team owners argue that building stadiums will boost a city's economy, economists and urban planners disagree.
Cities end up paying for stadiums because state and local governments issue tax-exempt bonds, which the federal government has approved for decades.
These tax breaks help to alleviate the burden of high debt by allowing cities and teams to pay for stadiums with low-interest municipal bonds. Municipal bonds have been a popular way to finance airports, roads, hospitals, and schools since 1913. Private entities could still purchase these bonds, but there was a volume cap that limited the number of public bonds issued each year.
Stadiums, on the other hand, were exempt from the cap. The 1986 Tax Reform Act sought to eliminate exemptions for private use, including stadiums. Instead, the bill unintentionally created a loophole that allows
The loophole works by establishing a fictitious financing structure using tax-exempt municipal bonds. To be eligible for those bonds, private companies must pass one of two tests outlined in the Tax Reform Act of 1986.
The private use-case test states that a private entity can only use 10% of the proceeds from a bond, which NFL teams will almost certainly pass. Then there's the private-payment test, which states that the stadium must back no more than 10% of the bond's debt service.
If a state or local government is willing to finance at least 90% of the stadium's cost, the private-payment test is met, and the stadium will receive tax-exempt financing via municipal bonds.
Tourism taxes are used by cities such as Las Vegas and Chicago to help pay off municipal bond commitments for their respective stadiums.
The Raiders and their $1.9 billion Allegiant Stadium are based in Las Vegas. The Las Vegas Stadium Authority contributed $750 million in bonds backed by hotel taxes to finance nearly 40% of the stadium.
"We're collecting about 50 million additional dollars through a room tax that's largely paid for by tourists, almost completely paid for by tourists. But the real key here is that the stadium generates more tax revenue than the $50 million," Steve Hill, chairman of the Las Vegas Stadium Authority, told CNBC about the net-positive spillover effects since the Raiders relocated from Oakland, California.
