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Will It Soon Be Game over for Tax-Exempt Financing of Professional Sports Stadiums?

By MEGHAN BURKE and POONAM PATIDAR

Public financing, including tax-exempt bond financing, of facilities used by professional sport teams has long been a controversial topic, with advocates and opponents disagreeing over whether the public benefits sufficiently to justify public subsidies.  Since 2000, over $3.2 billion of tax exempt bonds have been issued to finance the construction and renovation of 36 sports stadiums.

A bill has been introduced that would eliminate the availability of federally tax-exempt bonds for stadium financings.  Under existing tax law, use of a stadium by the applicable professional sports team constitutes “private use,” but taxable “private activity bond” status, which is triggered by “private use” of the financed facility combined with the presence of “private security or payment” for the applicable bonds, can be avoided by structuring the bonds to be payable from tax or other revenues unrelated to the financed stadium.

The bill would amend the Internal Revenue Code to treat bonds used to finance a “professional sports stadium” as automatically meeting the “private security or payment” test,  thus rendering any such bonds taxable irrespective of the source of payment.

This bill is identical to a version introduced in the House of Representatives in February and a slight departure from prior versions in the House that extended the exclusion from tax-exempt financing to a broader category of “entertainment” facilities.

What’s new this time? There are versions of legislation intended to terminate tax-exempt financing of professional sports stadiums in both the House and Senate, arguably evidencing an increased likelihood of advancement.

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Authors

Leonard Weiser-Varon is a Mintz Member who handles municipal and corporate debt transactions. Len represents state sponsors and private program managers of Section 529 and 529A savings programs. He often speaks on securities and constitutional law matters.

Meghan B. Burke

Member / Chair, Public Finance Practice & Chair, Education Practice

Meghan B. Burke leads Mintz's Public Finance Practice, serving as bond counsel and advising underwriters, borrowers, trustees, and purchasers in tax-exempt and taxable general obligation and revenue financings. Meghan handles matters related to transportation, education, health care, and other areas.
Poonam Patidar is a Mintz attorney who counsels governments, quasi-public authorities, institutional investors, indenture trustees, and higher education facilities on securities and tax law matters. She uses her background in finance to help clients achieve their strategic goals.