Legal Commentary

Looking at stadium subsidies

By Tom Kirkendall

As if on cue for the soccer stadium financing issues currently being discussed on the local scene, Dennis Coates provides this excellent op-ed in The American on the dubious nature of municipal stadium subsidies:

Clearly, stadiums built with public funds have evolved over time. No longer are they built to honor the sacrifices of American soldiers. No longer are they built to be flexible venues capable of hosting a great variety of events. And no longer does the public sector determine the appropriate price to charge private enterprise for use of this publicly supplied resource. Today, sports stadiums are largely the private domain of for-profit businesses that the public sector subsidizes, often with special taxes. [.  .  .]

Over time, both the purpose and the real cost of public support for stadiums and arenas have changed. It may be that the subsidies state and local governments provide for stadium and arena construction and operation are justified by the community benefits those facilities provide. But the evidence says otherwise. [.  .  .]

My own research, conducted with economist Brad Humphreys .  .  . finds that the professional sports environment—which includes the presence of franchises in multiple sports, the arrival or departure of teams, and stadium construction—may actually reduce local incomes. For example, we found that the overall sports environment reduced per capita personal income, a finding that was new in the economic literature at the time we published it (1999). We also found that, in many local economies, wages and employment in the retail and services sectors have dropped because of professional sports. [.  .  .]

Of course, even if the benefits of stadiums and arenas cover the subsidies, the subsidies still may not be sound policy. First, there may be enormous variation in the distribution of the consumption and public-good benefits. It is clear that not all citizens in a community benefit equally from the presence of professional sports franchises in their city. Indeed, because the tax revenues used for the subsidies are often generated from lotteries and sales taxes whose burden falls disproportionately on the poor, while the consumption benefits go mostly to relatively wealthy sports fans, the net benefits are distributed regressively. Second, we should consider the net benefits to the community of alternative uses of the funds spent subsidizing sports facilities. Good policy means using the money where the net benefit is greatest, not simply where the net benefit is positive. That’s something state and local governments should keep in mind before pledging millions of dollars to fund the next new stadium project. And it’s something Congress should remember when evaluating the future of U.S. tax policy.

Are you listening, Mayor White?

Full post as published by Houston's Clear Thinkers on April 30, 2008 (boomark / email).