If Nevada moves ahead with issuing $750 million in stadium bonds to lure the Oakland Raiders to town, it won’t be just hotel guests footing the bill.
Whether they visit Las Vegas or not, U.S. taxpayers will pony up between $150 and $200 million for the project via a bizarre scheme that doles out federal subsidies to cities that finance public works through tax-exempt municipal bonds, suggests a new report by the Brookings Institute, a think tank in Washington, D.C.
The study found that the use of such bonds by cities to build sports stadiums – the primary means of publicly financing such projects – has cost U.S. taxpayers a grand total of $3.7 billion since 2000.
With respect to the Las Vegas proposal, Citi Field in New York and Lucas Oil Stadium in Indianapolis, home of the Mets and the Colts, respectively, are the two most comparable stadiums in terms of public financing received. New York floated $734 million from 2006-2009, while Indianapolis issued $787 million over that same period.
Factoring in a three percent discount rate over the life of the bonds, Ted Gayer – the report’s lead author – found that U.S. taxpayers will subsidize Citi Field and Lucas Oil Stadium to the effect of $185 million and $163 million, respectively. Further, because interest rate calculations are inexact, each stadium will yield an estimated $214 million loss in federal tax revenue over that period, with the windfall going to bondholders.
These comparisons suggest that $750 million in public financing for a Las Vegas stadium will saddle U.S. taxpayers with a bill in the neighborhood of $150 million to $200 million.
However, this is an inexact estimate because the details of every stadium financing agreement are unique and depend upon a variety of factors like the length of the term, prevailing interest rates at the time and the creditworthiness of the municipality.
Tax-exempt municipal bonds are a common vehicle for cities to finance public works projects. The bonds qualify as tax-free under the condition that the local government guarantees the financing through taxation. In the case of Las Vegas, a 0.88 percent increase in the hotel room tax is being weighed.
Since the bondholders are exempted from taxes on the payments, they are willing to accept a below-market interest rate. This translates into reduced costs for the total project, though in reality it is the U.S. taxpayer footing the bill in the form of lost tax revenue. This is also known as a tax expenditure.
Gayer claims that this arrangement violates the principle of equity in taxation, which suggests the people being the taxed should be the ones who are deriving the most benefit from the good or service being rendered.
“Someone in Maine doesn’t really care whether the Raiders are in Oakland, Las Vegas or wherever,” said Gayer, adding that providing federal subsidies for local stadium projects “doesn’t make sense under any economic reasoning.”
The report urges that such subsidies either be done away with altogether or be reclassified, and reiterates much of the existing economic literature that suggests publicly-financed sports stadiums are not an efficient use of local or federal resources.
“There is little evidence that stadiums provide even local economic benefits. Decades of academic studies consistently find no discernible positive relationship between sports facilities and local economic development, income growth, or job creation,” the authors write. “And local benefits aside, there is clearly no economic justification for federal subsidies for sports stadiums.”
The report’s release comes as the Southern Nevada Tourism Infrastructure Committee continues its deliberations on how the financing for the proposed $1.9 billion stadium should be divided among the Raiders, Sheldon Adelson and the public.
Gayer emphasized that his findings offer up yet another reason as to why local officials should think twice when considering stadium projects.
“If I’m a Nevada legislator, I’m looking highly, highly skeptically at somebody who is claiming that this is a wise use of taxpayer dollars from an economic development point of view,” he said.
