Issue Brief: Financing of Sports FacilitiesUpdated January 2009
The Government Finance Officers Association (GFOA) opposes attempts by Congress to inappropriately deny tax-exempt financing for publicly-owned and operated recreational sports facilities. Further GFOA opposes efforts by Congress to preempt the authority of state and local governments to make decisions with respect to the financing of public facilities.
Background
Legislation has been introduced through the years that would limit tax-exempt financing for stadiums, arenas and other sports facilities, treating certain bonds used directly or indirectly for financing professional sports facilities as private activity bonds and not as qualified bonds, except for certain in progress or approved projects, facilities with final bond resolutions, and current refundings. These legislative efforts would also impact a number of facilities beyond those generally regarded as professional sports facilities. For example, public college or university sports complexes that serve as practice facilities for professional sports teams for a portion of the year, public ballparks, tennis facilities, ice-skating rinks and other community facilities that are used on occasion by professional athletes, including minor league teams, would not have been eligible for tax-exempt financing. Such recreational facilities are often used by individual taxpayers and a vast array of nonprofit organizations — from high school and community college teams to American Legion and youth leagues — and are critical to the spirit of communities.
Legislation eliminating tax-exempt financing for these facilities represents an intrusion by Congress into the affairs of state and local governments. By such financing, the cost to taxpayers to build new facilities or rehabilitate existing ones would dramatically increase, possibly making these recreational projects simply unaffordable. Further, such legislation would dictate to these jurisdictions how funds borrowed for governmental purposes may be spent. While Congress limits the ability of state and local governments to issue private activity tax-exempt bonds to make loans or provide financing to private entities, it generally has not limited the authority of state and local governments to borrow for locally determined governmental purposes. Substituting federal judgment for local judgment and allowing Congress to determine on a case-by-case basis what qualifies as a governmental purpose is not a solution.
Ironically, it was the 1986 federal tax law change that pushed governments into a larger financial role in professional sports stadium financing by restricting private financial participation in these projects. The 1986 Tax Reform Act eliminated stadiums from the list of private activities eligible for tax-exempt financing, but financing for governmental stadiums was specifically not eliminated, incorrectly, as some have claimed. The Senate committee report language on the Tax Reform Act of 1986 recognizes that stadiums would be permitted to be financed on a tax-exempt basis if governmental bonds were issued.
Outlook 2009
The House Governmental Oversight and Government Reform Committee held hearings throughout the 110th Congress about using tax-exempt bonds to pay for sports stadiums, specifically highlighting two new stadiums that are being built with tax-exempt bonds for the New York Yankees and the New York Mets. Although these hearings garnered significant attention, mostly negative, specific legislation aimed at eliminating the ability to issue tax-exempt bonds for stadiums was not introduced. GFOA will be monitoring any activities in the 111th Congress that takes place related to the use of bonds for sports stadiums.
Related GFOA Public Policy Statements
GFOA • Federal Liaison Center • (202) 393-8020 • (202) 393-0780 FAX • Email
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