NCPA - National Center for Policy Analysis

Tax Subsidies For Sports Projects

October 2, 1998

Supporters claim sports, entertainment and cultural infrastructure projects subsidized by taxpayers will pay for themselves in new jobs, paychecks and taxes. The federal government supports these projects through the privilege cities and states have to issue bonds whose interest is exempt from all federal taxes, as well as state taxes for investors who live in the state or community issuing the bonds.

  • Since public projects seldom pay for themselves, either in rental fees or in additional taxes, other broad-based taxes or state lotteries must cover their operating losses and annual debt service payments.
  • State and city taxes on restaurant meals, hotel room rentals and car rentals are common sources of tax revenues to fund these projects.
  • The cost in foregone tax revenues to the U.S. Treasury is estimated at $21 million for every $100 million in bonds issued.

Economist Robert Baade of Lake Forest College studied the experience of 48 cities with professional sports teams over a 30-year period. He found that:

  • In the 32 cities that experienced a change in the number of sports teams, 30 saw no change in per capita income, one improved and one worsened.
  • Of 30 cities experiencing a change in the number of stadiums or arenas, 27 showed no influence on income, but three experienced significant negative effects.
  • A more recent study by the Brookings Institution concluded that, "A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment."

Experts say the estimated $7 billion needed to construct the 40 professional sports facilities on the drawing boards or already underway could entail a federal tax subsidy of as much as $2.4 billion over the life of the tax-exempt bonds used to finance those projects.

Source: Ronald D. Utt, "Cities in Denial: The False Promise of Subsidized Tourist and Entertainment Complexes," Backgrounder No. 1223, October 2, 1998, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546-4400.

 

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