Roosevelt Institute | Cornell University

Obama's Proposal Could Spell End For Government Corporate Handout

By Lucas BergerPublished February 18, 2015

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Publicly funded stadiums, which are used entirely for private purposes, are a drag on local economies. President Obama is trying to end this practice in his proposed budget, and he may find some unlikely allies across the aisle.
On May 7th, 2009 the Dallas Cowboys opened their new stadium in Arlington, Texas. The 80,000-seat stadium cost roughly $1.3 billion to build and included the world's largest high definition screen, at the time of construction. The people of Arlington agreed to raise the city's sales, hotel occupancy, and car rental taxes in order to provide the team with $325 million towards building the new stadium. This happened despite the fact that team owner Jerry Jones is worth over $4 billion, and had already received a $150 million loan from the NFL to help cover construction costs.

            At first glance a situation like this seems far-fetched. Why would the public pay for a stadium that will hold the events of a private entity? Sure, the people of Arlington will be able enjoy Cowboy's game in an incredible new venue, but they will do so after paying exuberant ticket costs that end up in the coffers of a private entity. This scenario is one that has happened across the United States to provide funding for new stadiums for teams in just about every sport. According to Harvard urban planning professor Judith Long in 2010, 121 professional sports facilities in use for all five major sports leagues required $43 billion in investments in new construction or major renovations, and about half money came from the public.This spending on the building and upkeep of professional sports stadiums has been in large part fueled by section 141 of the 1986 Internal Revenue Code which allows proceeds from tax-exempt government issued bonds to be used on private projects. The only time that this exception can be denied is if ten percent of the funding for the debt comes from a private entity and if more than ten percent of the use of the facility will be for a private interest; known as the "two-test" rule. Thus bonds that are totally backed through public money but are used to help build a facility that provides almost entirely for a private entity are okay, as they only violate one of the two aforementioned conditions (the first one).

            This issue has drawn increasing amount of criticism from the public over the past ten years, as taxpayers have become more wary of providing their own money so teams can build the latest and greatest venues. The law, however, has remained relatively unchallenged over this time. This changed with the release of President Obama's 2016 fiscal budget on Groundhog Day. The budget contains a proposal to change the "two-test" that currently exists for government spending on private facilities into one that only considers whether or not the venue will be used for primarily private interests. This would in effect make it impossible for sports teams to secure government debt in order to fund their stadiums, as they are used almost entirely for private purposes.

            President Obama claims that enacting his proposal could raise as much as $542 million by 2025. Unsurprisingly the Democratic Party fully supports his initiative, as these tax breaks have long been viewed as an example of the people paying so that large corporations can thrive. What is more interesting, however, is that many conservatives have also expressed concerns over whether public funding for stadiums amounts to little more than corporate welfare. This support does not mean that President Obama's proposal will pass any time soon, on the contrary it most likely will not as Republicans view the issue as pretty insignificant compared to other components of the proposed budget. In addition the idea of supporting anything the President puts forward, especially an initiative that hurt large business, is not something that the vast majority of conservatives can get behind.

            Despite the fact that President Obama's proposal is unlikely to have any immediate effects, it has brought the issue back to life. Government issued debt that is backed by taxpayer money should not be used on facilities that put money almost exclusively into the hand of private entities. Supporters of the current system argue that new stadiums often bring economic growth to the surrounding area but most studies have shown this is simply not the case. Eventually this issue needs to be solved, and there is enough discord within the Republican Party that suggests this could be the time when someone finally decides to take real action.

Image Source: https://cbsdallas.files.wordpress.com/2013/01/cotton-bowl-cowboys-stadium.jpg