In 2022, the NFL’s Tennessee Titans unveiled their plans for a new stadium in the heart of Nashville. The 1.7 million square foot stadium can hold 60,000 cheering football fans and is estimated to cost $2.1 billion.
The public would fund more than half of the stadium through a one-time state contribution of $500 million and $760 million through revenue bonds issued by Nashville’s Metropolitan Sports Authority.
Since 2000, government funds diverted to help build professional sports stadiums and arenas have cost taxpayers $4.3 billion. While the NFL and team owners argue that building stadiums will ensure a city’s economic growth, economists and urban planners believe otherwise.
The reason cities end up paying for stadiums starts with the issuance of tax-exempt bonds by state and local governments that the federal government has approved for decades.
These tax holidays help reduce the burden of high debt through low-interest municipal bonds used by cities and teams to pay for stadiums. Since 1913, municipal bonds have been a popular financing option for airports, roads, hospitals and schools. Private entities could still access these bonds, but were subject to a volume cap limiting the number of public bonds issued each year.
As for the stadiums, well, they were not subject to this cap. The Tax Reform Act of 1986 wanted to put an end to exemptions for private use, including stadiums. Instead, the bill inadvertently created a loophole allowing stadiums to be backed by tax-free public bonds.
The loophole works by creating an artificial financing structure through tax-exempt municipal bonds. To qualify for these bonds, private companies must fail one of two tests stipulated by the Tax Reform Bill 1986.
The Private Use Case Test states that a private entity cannot use more than 10% of a bond’s money, a test that NFL teams will most certainly pass. Then there is the private payment test which states that no more than 10% of the bond’s debt service is supported by the stadium itself.
So if a state or local government is willing to fund at least 90% of the cost of the stadium, it fails the private payment test, which means the stadium will receive tax-exempt funding through municipal bonds.
However, to maintain this tax exemption, the reimbursement of the bonds cannot come directly from the income generated by the stadium or from the collection of rents. Instead, cities rely on taxes such as hotel taxes to pay off these obligations. The recovery of revenue generated by these taxes varies from city to city.
Cities like Las Vegas and Chicago rely on tourist taxes to help pay off these municipal obligations for their respective stadiums.
Las Vegas is home to the Raiders organization and its $1.9 billion Allegiant Stadium. The Las Vegas Stadium Authority financed nearly 40% of the stadium with $750 million in bonds backed by its hotel taxes.
“We raise about another $50 million through a room tax that is largely paid by tourists, almost entirely paid by tourists. But the real key here is that the stadium itself generates more tax revenue than the $50 million,” Steve Hill, chairman of the Las Vegas Stadium Authority, told CNBC of the net positive spinoffs since the Raiders moved. to Las Vegas from Oakland, CA.
As for Chicago, tourist taxes haven’t exactly worked in favor of the city; the spillover gains the city has seen so far have been negative.
In 2002, Soldier Field, home of the Chicago Bears, was in dire need of renovations to modernize the stadium, which was built in 1924. Renovation costs totaled $587 million. The NFL and the Bears organization contributed $200 million for the work, and the City of Chicago funded $387 million through municipal bonds levied through a Chicago tourism tax. According to an NBC Chicago News investigation, 20 years after the renovation, Chicago owes $640 million on its original $387 million obligation after years of deferring payments. The city declined to comment on NBC Chicago.
Since 2015, reining in the spending of public funds diverted to professional stadiums has become an increasingly bipartisan issue, with both sides of the aisle expressing a common interest in closing the 10% loophole.
In 2015, the Obama administration proposed closing the 10% loophole for sports and other private projects. In 2017, Sens. Cory Booker, DN.J., and James Lankford, R-Okla., introduced a bill banning the use of tax-exempt bonds for all professional sports venues.
That same year, the Trump administration proposed eliminating tax-exempt bonds for NFL stadiums through the administration’s tax reform bill. However, language regarding NFL stadiums was removed from the finalized tax reform bill.
Most recently, Rep. Earl Blumenauer, D-Ore., introduced a new bill called the No Tax Subsidies for Stadiums Act of 2022.
However, no significant movement has been made to push these proposals into law.
As for what fans think about this issue, most just want to make sure their team stays put. Fan protests have erupted over the years as other cities spoofed their teams. A shared identity connects NFL teams and their fans, and a team can reflect the personality of a city.
Die-hard fans in the Big 30 cities will continue to fight to make sure their teams stay in their hometowns, even if it means footing the bill.
Watch the video above to learn how American taxpayers are paying billions to fund NFL stadiums.