President Barack Obama recently unveiled his nearly $4 trillion budget, and it immediately made waves. As the unabashedly liberal wish list it is, Obama knows it will never be passed by the newly elected, GOP-controlled Congress. Nevertheless, some of the proposals are sly and pragmatic, serving as valuable political messages if nothing else. One such proposal – to shift the costs of building stadiums away from federal taxpayers – has caught the eye of many in the sports world. Generally, politicians support the construction of large stadiums in their cities and states out of fear that team owners will move their teams elsewhere. The team owners, adept at leveraging their importance, often force state and local governments to fund stadiums with additional support from federal taxpayer dollars. The Obama Administration aims to alleviate this burden on taxpayers by forcing stadium construction solely into the hands of local governments and private investors. Here, at least, Obama’s budget is eliciting a Republican reaction other than a resounding “no”; The GOP is divided between supporting the proposal because it would lower taxes and rejecting it because it hurts big business and other job creators. While Obama does not expect his fiscal plan to pass, it does provide an opportunity to exploit this fuzzy partisan line, highlighting an unusual split in GOP thinking – just in time for 2016.
Obama’s main stadium-related budget proposal focuses on tax-exempt bonds issued by state and local governments. Cities and states, in addition to receiving revenue from local taxes, can raise funds by issuing bonds to private investors at below market interest rates. Investors buy these bonds because the interest they ultimately receive is exempted from federal income tax, which creates a subsidy from the federal government. The cost of this subsidy to the federal government – by way of lost tax revenue – is much greater than the amount that local governments save by paying a lower interest rate. Moreover, investors are able to make money off of these bonds, since the income tax for wealthy investors is higher than the percentage that the interest rate is lowered by. Currently, unless more than 10% of the debt service is paid by a private business and more than 10% of the use of the facility is attributed to a private interest, big sports facilities can be built using tax-exempt bonds. Unfortunately, the first requirement is relatively easy to stay within while the second one is not, which makes tax-exempt governmental bond financing viable. So, the Obama Administration wishes to eliminate the first requirement, as the second requirement alone, would almost always preclude the bond’s tax-exempt status, making it a useless tool for stadium funding. This policy would shift the burden of the stadium’s expense more onto private investors instead of the taxpayers. Still, local taxpayers would potentially see an increase in their contribution to these stadiums, but it would be a negligible amount. Private investors, as well as local taxpayers, would have to take on the additional costs, or cities would be forced to build less expensive stadiums. From 1909 to 2012, local governments have coughed up over $32 billion for stadiums, while private investors have only contributed about $21 billion. In recognition of such large costs to the public, the Obama Administration, in its dream budget, would ideally shift the stadium financing away from federal taxpayers and on to others.
Publicly funded sports venues are certainly contentious, as new stadium deals in Minnesota and Georgia have recently engendered forceful criticism, as well as strong support. Proponents argue that new stadiums create jobs and opportunities for the surrounding communities, an argument that has time and time again been debunked. Instead, these communities are deceived by extra costs and ambiguous budgets, which are designed to make politicians look good by enticing teams to stay in the area and appeasing team owners. By inserting this proposal into his budget, Obama forces Republicans to answer the question: Which is more important – decreasing taxes for citizens or decreasing costs for private investors and local governments?
Of course, this policy will never be realized – the Republican-controlled Congress is going to tear the President’s budget apart. Yet Obama might still succeed in another way, by sparking a conversation about this issue to exacerbate already growing rifts in the Republican Party. Playing on this small issue, Obama can try to further split the GOP between its establishment wing and libertarian wing. The interplay between these two factions of the GOP will certainly be tough for a 2016 Presidential nominee to balance, so highlighting these differences to separate the two sides is a clever political move by the Obama Administration.
Moreover, this is a shrewd course of action for Obama to take on behalf of his party. In helping splinter the Republicans, he helps the Democrats in 2016. For example, Scott Walker is currently trying to reach a new stadium deal for the Milwaukee Bucks, which will have to consider moving if the state does not raise the cash for a new stadium. Walker will have to balance the competing Republican ideologies of low debt, low taxes, protecting job creators and supporting big business, all while avoiding too much heat when he inevitably chooses a side. Given that Walker is also considering a presidential run, he will be under intense media scrutiny as he tries to cater to all factions. Of course, Walker is not the only elected official who has been under fire: stadium payments can create a backlash on both sides of the aisle. Stadium deals have sparked discontent from liberals in San Francisco and Tea Party activists in Atlanta. While the issue is doubtlessly more divisive for small-government types, liberals also seem to have qualms with a public-private partnership designed to benefit big business.
Obama’s budget politics illustrate a resurgent willingness to help his party, an atypical move for Obama and lame duck presidents in general. The proposed change in stadium financing at the public’s expense is illustrative of this change, and its inclusion in the budget serves to expose the fissures among pro-business and anti-tax Republicans. As 2016 looms, modest issues like taxpayer-funded sports venues could exacerbate the divide in an already fractured GOP presidential lineup, and if they work, Obama’s Democratic successors will likely appreciate the help.