As the Atlanta Hawks could become the third local professional sports franchise to build a new stadium with the help of government bonds, the Obama administration is proposing to eliminate a key tax exemption for pro sports facilities.
The proposal, which faces an uphill battle in Congress, sparked a rare dissent from Atlanta Mayor Kasim Reed, usually a close ally of the president’s, as he begins talks with the city’s pro basketball franchise.
“I don’t believe in removing tools from cities because running a city is a very complicated and difficult matter,” Reed said. “And I think that we need all of the tools that are available to us as long as the voters authorize and support our behavior.”
Reed indicated last week that the Hawks are looking at renovating Philips Arena or building a new facility. While he said it’s far too soon to know how such a deal would be structured, Reed said he will consider using public funds.
The majority of the $200 million in Atlanta bonds for the new Falcons football stadium are exempt from federal taxes, making the project cheaper for bondholders and the city. A portion of the Falcons project and the entirety of the $380 million-plus in Cobb County bonds for the new Braves baseball stadium will be taxable — and unaffected by the administration’s proposal.
The Obama administration, in its budget request early this year, proposed to ban the use of tax-exempt bonds for pro sports stadiums. In other words, if a state or local government builds a stadium with bond money, it will not get the same kind of tax treatment as a school or highway.
A Treasury Department report concluded that "the current structuring of the governmental bonds to finance sports facilities has shifted more of the costs and risks from the private owners to local residents and taxpayers in general."
The tax change would raise $542 million in revenue over 10 years, the Treasury Department estimated.
It was one of a slew of changes proposed by the Obama administration this year that have not moved in Congress. Leaders there have long discussed a rewrite of the federal tax code, but it’s unclear which specific provisions would be included.
“Everything needs to be on the table if we’re going to achieve real, meaningful tax reform,” said Brendan Buck, a spokesman for U.S. Rep. Paul Ryan, R-Wis., chairman of the House tax-writing committee.
Georgia Republican U.S. Sen. Johnny Isakson has been involved in Senate talks on a tax overhaul, but he told The Atlanta Journal-Constitution and Channel 2 Action News that stadiums have not come up.
“You just take one of these single issues out, sometimes you can put it on the wall and see if it sticks,” Isakson said. “But in the end, tax reform has to be comprehensive — corporate, individual and government tax treatments like tax-free bonds.”
Isakson said he does not expect a deal on a tax overhaul until 2017.
That’s one reason Reed said he is not concerned about the proposal meddling with the Hawks deal.
“It’s highly unlikely that will pass in time to impact us,” Reed said this week.
He then repeated why he believes the Falcons deal is a boon for the city. Under the deal, Atlanta is contributing $200 million in bonds backed by hotel-motel taxes to help build the $1.4 billion stadium, which could get hundreds of millions more in tax revenue for maintenance and operations.
“No property taxes or taxes were raised to support that debt. The bondholders look solely to the hotel-motel tax and the city of Atlanta makes $8 million to $10 million a year,” Reed said.
Speaking to reporters last week while touring the new Falcons stadium underway in downtown Atlanta, team owner Arthur Blank expressed confidence that the team could have pursued a new facility even without tax-exempt bonds.
“I couldn’t tell you how, but we would’ve found a way to establish an effective public-private partnership,” Blank said, adding that giving specifics would be mere conjecture. “I think regardless of the tax structure, different forms of bonds available or not available, we would’ve found a way.”
Taxpayer-backed stadiums are widespread across the country, despite persistent criticism from economists and watchdog groups. Gov. Scott Walker, R-Wis., now stressing his conservative record as he runs for president, is set to approve $250 million in public money for a new basketball arena for the Milwaukee Bucks.
A December 2013 national poll by Fairleigh Dickinson University found 69 percent of respondents opposing the use of public money for National Football League stadiums, but the projects continue.
"Both parties like to do it because it is a shiny object and they can have a groundbreaking and say this is economic progress," said David Williams, the president of the Taxpayers Protection Alliance, a conservative-leaning watchdog group. "It's really not economic progress when you're asking taxpayers to fund something that can be funded by the private sector."
Williams praised the administration’s proposal and said it could pick up support as a stand-alone bill, rather than wedged into a massive budget.
“No matter what the vehicle is, you have to send the message that taxpayers will not be financing stadiums — whether it’s tax-exempt bonds, whether it’s direct expenditures,” Williams said.
Meanwhile in Atlanta, talks continue on the Hawks, with city leadership still smarting from losing the Braves to Cobb County.
“A thorough analysis must be done, but as of now, it is too soon to say what type bond would be most appropriate,” said Atlanta Councilwoman Keisha Lance Bottoms, the executive director of the Atlanta Fulton County Recreation Authority — which owns Philips Arena. The authority can issue both taxable and tax-exempt bonds depending on the purpose, she said.
On the Obama proposal, Bottoms said while federal guidance can be useful, the nuances of attracting and retaining sports teams “may not always be fully appreciated from a national policy perspective.”
Reed met earlier this week with NBA All-Star Grant Hill, one of the Hawks’ new leaders, to discuss the team’s plans.
The mayor didn’t elaborate on the nature of those talks but said: “Having the Hawks in the city of Atlanta is very important to me, and so we’re going to work to make it happen.”
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