The city of Las Vegas should be issuing the municipal bonds needed to fund the $750 million they are putting towards the Raiders new stadium now. For years, professional sports teams have been allowed to issue municipal bonds to fund stadiums. If 90 percent of the stadium funding was done through issuing these bonds, they were treated like any other public project. Basically raising funds to build a stadium or arena was treated the same as building a road, bridge, or school. Donald Trump’s new tax plan is trying to close that loophole.
Here’s a quick primer on municipal bonds: they are generally issued for a public project. Federal and state governments love these projects and improvements. To help lower the cost of borrowing money, municipal bonds are sometimes tax-exempt at the local and federal level. So the bond issuer — in this example Las Vegas — doesn’t have to pay out as much interest as they normally would because the investor makes up their yield with the tax-exemption.
That is until this new tax plan came along. Now stadiums would not be considered a public works project. When companies build a new headquarters or satellite office, they generally have to pay more expensive interest payments because the bonds they issue have interest payments that the investor is getting taxed on.
The NFL has obviously come out against this change in the tax code because they love free lunch. It’s free money given to them by a government. They also love being able to leverage moving a team to a new market that’s willing to issue bonds because they know they can issue it at a low borrowing rate. Las Vegas isn’t throwing $750 million at the Raiders if they had to pay let’s say seven percent versus borrowing at three percent — those numbers are just used to provide an example.
Essentially the federal government is telling the NFL — and all sports leagues for that matter — that they aren’t going to give up tax revenue for the owners’ benefit. These owners are billionaires who made money running very successful businesses. They should be able to figure out a way to build a stadium and remain profitable.
This is a huge PR win for the federal government. Liberals believe any increase in taxes should go to schools or public programs and not stadiums. Conservatives railing against the NFL aren’t exactly keen on giving the league a free pass either. The federal government has lost $3.2 billion dollars in revenue since 2000 due to this loophole. In the grand scheme of the United State’s budget that’s basically nothing, but it sure looks like a big number to anyone simply reading it without context.
Here’s why Las Vegas needs to issue those bonds now. Tax-exempt bonds issued before the new tax plan passes keep their status. Meaning there will be no changes to any bonds issues pre-tax cuts. So nothing is really in jeopardy. The Raiders will still move to Nevada. There’s no real change. But the party is over for most professional sports league if this passes. It doesn’t matter what economic impact study they show.