While a number of officials connected with the push to secure funding for the Raiders' stadium in Las Vegas have reacted to a provision in the GOP's proposed tax bill with considerable amounts of incredulity, don't count Steve Hill among them.
With a long-awaited groundbreaking ceremony for the $1.9 billion project scheduled for Monday, Hill described a measure that could eliminate the usage of tax-exempt bonds for professional sports stadiums as a meaningful obstacle, but one that can be overcome. Addressing a public hearing on Thursday, the chairman of the Las Vegas Stadium Authority still admitted that the removal of the federal tax subsidy could cost the city millions of dollars a year.
Under Section 3604 of the bill, the interest on bonds issued for the construction or capital expenditures of professional sports stadiums will be subjected to Federal tax, according to a House Republican plan unveiled Nov. 2. Based on the current spread between taxable and tax-exempt bonds, the change could result in about $3 million in additional costs for the project, Hill said. Although bond consultants working with the authority have projected a 0.5% increase in interest rates by April when Clark County (Nev.) may begin issuing up to $750 million in general obligation bonds, the projections could change if interest rates rise higher than anticipated, he added.
"I hadn't paid any attention to the issue until it was actually included in the tax bill, so being surprised by things in D.C. at this point is something that happens periodically, I guess," Hill said, following the stadium authority's November meeting. "It would cause us generally as a community to lose $3 million a year."
Other politicians associated with the stadium project have weighed in on the GOP proposal throughout the week. Before the meeting, Sen. Dean Heller (R - Nev.) said in an interview with the Las Vegas Review-Journal that he will try to work with Congressional leaders in attempts to gain an exemption for the stadium through a grandfather clause since the Raiders' project was already under discussion prior to the introduction of the legislation. Meanwhile, Clark County Commission Chairman Steve Sisolak, a 2018 Nevada gubernatorial candidate, appeared taken aback by the developments on Capitol Hill, telling the San Francisco Chronicle that the elimination of the tax exemption is akin to "changing the rules mid-game."
For many municipal bond and stadium financing experts alike, the Raiders' model represents a unique situation that could be characterized as virtually unprecedented in the history of public-private stadium partnerships. The authority intends to repay the principal and interest on the bonds through a 0.88% increase in the county's hotel room tax within its primary resort corridor. But for a destination city that already attracts more than 42 million tourists per year, political leaders in Las Vegas are banking on the fact that hotel tax revenues will rise incrementally based solely on the influx of fans projected to attend Raiders' games, said Rick Eckstein, professor of Sociology at Villanova University.
Though Eckstein did not dispute the $3 million projection, he said it is less clear on who will foot the bill. According to Nevada Senate Bill 1, an October 2016 bill that established the groundwork for the stadium plan, the bonds require a debt coverage ratio of 1.5 times the annual debt service for each year of the term of the obligations. For instance, if the authority's annual debt service is $33.3 million per year, proceeds from the taxes have to be sufficient enough to generate $5o million in revenue. The bill also established a reserve fund, which allows for contributions of up to $9 million a year up to 2.0 times the annual debt service. Remaining amounts from the hotel tax revenues could be used toward a so-called coverage waterfall for costs such as closing UNLV's Sam Boyd Stadium and the maintenance of the venue. The projected $3 million annual cost would not be used to support the issuance of the bonds, but would come out of the waterfall, Hill said.
Hill does not envision a scenario in which the spread between taxable and tax-exempt bonds could widen enough to require the county to raise the hotel room tax.
"The likelihood of that happening is extremely low, it would take a change in the law to allow that to happen," he said. "We would have to figure something else out."
Following tax increases designated for the stadium and a local convention center expansion, the Las Vegas room tax rate is projected to be around 13.4%, according to stadium recommendations made by the Southern Nevada Tourism Infrastructure Committee in December 2016. At the time, the rate remained below comparative lodging tax rates in New York, Los Angeles and Washington D.C.
In the recent past, a number of municipalities have designed innovative ways to help pro sports franchises defray the costs of massive stadium projects. The most creative of which, Eckstein said, took place in Arlington, Tex., where parking tax revenues from the city were used to assist the Cowboys in paying down the debt associated with the construction of AT&T Stadium. Years earlier, hotel tax revenues in San Diego were used to pay back approximately $225 million in municipal bonds that financed the building of Petco Park. Prior to that, the Arizona Diamondbacks received $238 million in public funding from a quarter-cent sales tax hike in Maricopa County despite a law that limited the amount of money that could be spent on sports and entertainment facilities in the area, Eckstein explained.
"There always seems to be asterisks and footnotes that allow what seems to be concrete to become more fluid," Eckstein said.
"From the point of the view of being fiscally prudent you should have a designated targeted revenue stream so that it's not going to have to come out of existing coffers such as education, public safety or medical care."
Efforts in Washington to curb the public assistance of sports stadium appear to have gained bipartisan support on both sides of the aisle. Two U.S. senators, Sen. Cory Booker (D - NJ) and Sen. James Lankford (R - Oklahoma) introduced legislation in June aimed at ending federal subsidies for stadiums. Months earlier, a bill from Rep. Steve Russell (R - Oklahoma) sought to alter a portion of the federal tax code by taxing bonds used in the construction of stadiums and arenas. It came on the heels of a 2016 paper from the Brookings Institute that examined three dozen stadiums constructed or renovated since 2000 which received assistance from federal tax expenditures in the form of tax-exempt municipal bonds. The study found that the tax exemption led to estimated revenue losses of $3.7 billion for the federal government.
Ted Gayer, vice president and director of the Economic Studies program at the Brookings Institute, does not anticipate that an elimination of the tax-exempt status for pro sports stadium will lead to a drastic change in stadium financing trends.
"If local governments want to finance a stadium, let's say entice a team to move there, they will either have to do a slightly cheaper stadium or put up a little more of their own money as opposed to counting on this de facto federal subsidy," said Gayer, the lead author of the study.
Others still maintain that sports stadiums provide ample social and economic benefits for numerous communities that could be diminished if the tax exemption is removed. The Raiders' stadium project is expected to create 18,700 construction jobs and produce an annual economic impact of $620 million, according to the Southern Nevada Tourism Infrastructure Committee's projections.
James Spiotto, managing director of Chapman Strategic Advisors LLC, a Chicago-based municipal finance consultancy, indicated that Section 3604 could be amended considerably if the GOP bill is passed.
"Hopefully, the emphasis will be on as some said in the Ways and Means committee hearing 'let's do away with the abuses rather than eliminate the whole tax exemption,'" Spiotto said. "There may be some modifications or higher requirements to meet the exemption."
