Stadiums Are Built On Federal Tax Break

The recent wave of sports stadium and arena construction is costing the U.S. Treasury more than $100 million annually because the projects have been financed with tax-exempt bonds, a federally supported method of borrowing money more often used to build roads, schools and other public projects.

The federal tax break for professional sports venues is rarely recognized in the fractious stadium debates across the country.

At least 38 major league sports venues have been built or rebuilt using nearly $7 billion in tax-exempt financing since 1990, according to a Washington Post review of more than 40 professional baseball, football, hockey and basketball projects. The cost to the Treasury was calculated using the same methods employed by Treasury and congressional tax estimators.

As the District and Virginia advance stadium construction plans this summer to attract a major league baseball team, each group proposes to issue millions in tax-exempt bonds. The considerable debate over the projects has included few questions about the use of such bonds. But assuming current tax rates and today's low interest rates, either stadium plan is likely to cost the Treasury $3 million or more annually.

All of this money, critics of this type of financing say, could be better spent.

"Baseball has been given a license to play Monopoly, and they're playing it with our money," said Fairfax County Supervisor T. Dana Kauffman (D-Lee). "Baseball or any other sport is something nice to have, not a must-have. As it is, we don't have enough money for our must-haves."

The $100 million lost to stadium construction plays a small role in the $2.1 trillion federal budget. But critics of the exemption say the lost revenue is enough to cover some significant public programs. To take one example, $100 million is the amount the Centers for Disease Control and Prevention plans to distribute to help states boost their smallpox vaccination programs.

Sen. Byron L. Dorgan (D-N.D.) has characterized the use of tax-exempt bonds for sports venues as an entitlement program for the very rich, and he has pushed, unsuccessfully, to prohibit the practice.

"In our view, this is a very expensive public housing program for millionaires -- a subsidy for the millionaires who own these teams and the millionaire athletes who play on them," said Barry Piatt, Dorgan's communications director. "When we have a towering and growing deficit and claim that we can't afford to strengthen health care for seniors or adequately fund education for kids, does this make any sense?"

Stadium construction proponents in this region and elsewhere, however, defend the use of tax-exempt financing.

"Stadiums are in some sense a private use and in some senses a public use," said Stephen M. Green, a D.C. economic development official. "We view it as an investment in the infrastructure of the city."

Gabe Paul Jr., executive director of the Virginia Baseball Stadium Authority, said the method is going to help Virginia taxpayers. "From the point of view of Virginians, we want to take advantage of this legal mechanism," he said. The ballpark "is going to cost Virginians less because of the tax law."

The advantage of tax-exempt bonds is that they allow cities, counties, stadium authorities and other public entities to borrow money at lower interest rates, saving millions of dollars annually on debt repayment. Bond investors accept the lower rates because their earnings are not taxed.

When King County, Wash., issued $310 million in bonds for a baseball stadium in 1997, for example, the tax-exempt status on the bonds got them an interest rate of 5.9 percent. Equally rated taxable bonds issued at the same time by King County carried an 8 percent interest rate. The difference in rates amounted to $6 million in yearly savings for the county.