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PROFESSIONAL SPORTS STADIUMS: DO THEY DIVERT PUBLIC FUNDS FROM CRITICAL PUBLIC

INFRASTRUCTURE?

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 10, 2007

Serial No. 110–193

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

TOM LANTOS, California

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

DAVID MARIN, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

TOM LANTOS, California

ELIJAH E. CUMMINGS, Maryland

DIANE E. WATSON, California

CHRISTOPHER S. MURPHY, Connecticut

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

BRIAN HIGGINS, New York

BRUCE L. BRALEY, Iowa

DARRELL E. ISSA, California

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

CHRIS CANNON, Utah

BRIAN P. BILBRAY, California

JARON R. BOURKE, Staff Director

(III)

C O N T E N T S

Page

Hearing held on October 10, 2007 .......................................................................... 1

Statement of:

Long, Judith Grant, assistant professor of urban planning, Graduate

School of Design, Harvard University; David P. Hale, director, Aging

Infrastructure Systems Center of Excellence, University of Alabama;

Bettina Damiani, director, Good Jobs New York; and Steven Maguire,

Specialist in Public Finance, Congressional Research Service ................. 86

Damiani, Bettina ....................................................................................... 109

Hale, David P. ........................................................................................... 97

Long, Judith Grant ................................................................................... 86

Maguire, Steven ........................................................................................ 125

Solomon, Eric, Assistant Secretary for Tax Policy, Department of Treasury; and Arthur J. Rolnick, senior vice president and research director,

Federal Reserve Bank of Minneapolis ......................................................... 12

Rolnick, Arthur J. ...................................................................................... 24

Solomon, Eric ............................................................................................. 12

Letters, statements, etc., submitted for the record by:

Damiani, Bettina, director, Good Jobs New York, prepared statement

of ..................................................................................................................... 111

Davis, Hon. Danny K., a Representative in Congress from the State

of Illinois, prepared statement of ................................................................ 75

Hale, David P., director, Aging Infrastructure Systems Center of Excellence, University of Alabama, prepared statement of ................................ 99

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

Letter dated July 23, 2008 ....................................................................... 51

Prepared statement of ............................................................................... 7

Long, Judith Grant, assistant professor of urban planning, Graduate

School of Design, Harvard University, prepared statement of ................. 90

Maguire, Steven, Specialist in Public Finance, Congressional Research

Service, prepared statement of .................................................................... 127

Rolnick, Arthur J., senior vice president and research director, Federal

Reserve Bank of Minneapolis, prepared statement of ............................... 27

Solomon, Eric, Assistant Secretary for Tax Policy, Department of Treasury, prepared statement of ........................................................................... 15

Watson, Hon. Diane E., a Representative in Congress from the State

of California, prepared statement of ........................................................... 142

(1)

PROFESSIONAL SPORTS STADIUMS: DO THEY

DIVERT PUBLIC FUNDS FROM CRITICAL

PUBLIC INFRASTRUCTURE?

WEDNESDAY, OCTOBER 10, 2007

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m. in room

2154, Rayburn House Office Building, Hon. Dennis J. Kucinich

(chairman of the subcommittee) presiding.

Present: Representatives Kucinich, Cummings, Davis of Illinois,

Tierney, and Issa.

Staff present: Jaron R. Bourke, staff director; Charles Honig,

counsel; Jean Gosa, clerk; Chris Mertens, intern; Natalie Laber,

press secretary, Office of Congressman Dennis J. Kucinich; Leneal

Scott, information systems manager; Alex Cooper, minority professional staff member; and Larry Brady, minority senior investigator

and policy advisor.

Mr. KUCINICH. The committee will come to order.

I have been informed by the minority staff that Mr. Issa will be

here, but he has asked if we could begin in his absence. He has

assented to that.

We have also been asked by Mr. Solomon if we could expedite his

testimony, as he has other pressing time commitments, and we

shall do that, as well.

The committee will come to order. The Subcommittee on Domestic Policy of the Committee on Oversight and Government Reform

is in order. Today’s hearing will examine whether professional

sports stadiums divert public funds from critical public infrastructure.

Without objection, the Chair and the ranking minority member—

who, again, has asked us to proceed in his absence, but he is on

his way—will have 5 minutes to make opening statements, followed by any opening statements, not to exceed 3 minutes, by any

other Member who seeks recognition.

Without objection, Members and witnesses may have 5 legislative days to submit a written statement or extraneous materials for

the record.

The Department of Transportation says there are 12,176 structurally deficient urban bridges in America today. I can tell you,

coming from Cleveland, OH, we have quite a few in our city, as

well. One of those bridges collapsed in Minneapolis, MN, last AuVerDate 11-MAY-2000 16:26 Sep 28, 2009 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 U:\DOCS\51756.TXT KATIE PsN: KATIE
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gust killing 13 people. Our bridges, roads, schools, and water purification systems are all aging. Many are in need of repair and replacement. Assessing the whole picture, the American Society of

Civil Engineers has concluded America’s infrastructure is ‘‘crumbling.’’

For those who are in the audience, every county engineer in

America has to keep a list of the conditions of critical infrastructure and particular bridges and to grade those bridges as to their

structural stability. I have seen lists in quite a few communities,

and I can tell you there is a great concern across America about

the structural stability of a lot of our infrastructure.

But even though we have our infrastructure crumbling, the Minnesota Twins got public funding approved for a new stadium just

a year before the I–35 West bridge collapsed. The Yankees are getting a new stadium valued at over $1 billion, even though New

York City, alone, has 50 structural deficient bridges. In Cleveland,

local and State government gave the Browns and the Indians and

the Cavaliers new stadiums, yet we have five structurally deficient

bridges in the county.

As an aside, while we are, in Cleveland, very proud of our Cleveland Indians and want to see them go to the World Series, we also

know that in the city of Cleveland there was a great debate about

the funding for these stadiums and that, while the public provides

the funds, the people who are living in the city aren’t getting any

free tickets to these games. They are paying, if they can get a ticket, for the ticket. They paid for the stadium. They don’t get any of

the profits.

Now, this story of crumbling infrastructure around the Nation is

pretty much the same everywhere, in light of publicly funded and

financed sports stadiums. Baltimore has two publicly financed

sports stadiums, while the county has eight structurally deficient

bridges. Philadelphia has three publicly financed sports stadiums,

while the county has 42 structurally deficient bridges. Chicago has

two publicly financed sports stadiums while it has a whopping 82

structurally deficient bridges.

Keep in mind this isn’t about whether we love our teams in our

towns; we all have a great and passionate love for our home team.

But this is a separate issue as to where do we put our infrastructure money. Does public funding of professional sports stadiums divert funds and attention from infrastructure maintenance?

Let’s look at the case in Minnesota. Since taking office in 2003,

Minnesota Governor Tim Pawlenty consistently opposed increases

to the gasoline tax, even vetoing them at least once. The gasoline

tax increase would have funded bridge and road repair. But he

signed a bill allowing Hennepin County to raise its county sales tax

without going to the voters, as county law mandates. The county

tax increase was dedicated to paying the debt service on the bonds

for a new Twins Stadium.

The Minnesota experience is not unique. State and local officials

continue to invest public funds in professional sports stadiums, in

spite of the persistence of crumbling bridges, roads, and schools.

Federal taxpayers continue to subsidize these give-aways by financing new professional sports stadiums with tax-exempt bonds. If

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there was ever a topic meriting oversight and government reform,

we have one here.

Repairing and maintaining America’s roads and bridges is one of

the key Government responsibilities, and it is a significant burden

on State and local taxpayers. According to the Congressional Budget Office, 63 percent of State and local infrastructure spending is

devoted to operations and maintenance. That amounted to $151 billion in 2001. Those funds are diverted from gasoline taxes and general revenues.

Most of the structurally deficient bridges are owned by States

and localities. According to the U.S. Department of Transportation,

24,061 of the Nation’s 77,793 structurally deficient bridges are

owned by States, and 55,390 of them are owned by local governments. Obviously, State and local governments are having a hard

time keeping up with the rising cost of bridge maintenance and

structural maintenance.

Well, now comes along the professional sports team owners, and

to that problem they add another: they want a new stadium. And

not just a new stadium, but they ask for parking facilities, a dedicated ramp from the highway, new stadium to have more luxury

boxes, even at the expense of fan seating. They want to finance the

tax-exempt bonds that the city and State would guarantee because

the costs of construction are lower with reduced interest rates on

tax-exempt bonds.

So what happens? Cities and States compete with one another to

offer the larger package of publicly financed incentives. According

to one of our witnesses here today, Professor Judith Grant Long of

Harvard, in both absolute and relative terms the public spends a

lot on professional sports stadiums. In her written testimony, Professional Long finds that the public will have spent $33 billion on

professional sports stadiums by the time the last facility currently

scheduled for construction is completed.

Taxpayers also assume a large share of costs for new professional

sports facilities. Among new professional sports facilities built since

1990, the average public share of cost is estimated to be between

55 and 85 percent.

Clearly, having a professional sports team in one’s city is an expensive item, but it is also not a very good investment. There are

few things economists agree on, but the profession is unanimous on

this point. At our last hearing on the topic, sports economist Dr.

Brad Humphreys of the University of Illinois stated, ‘‘I have not

found any evidence whatsoever suggesting that professional sports

stadiums create jobs, raise income, or raise local tax revenues.’’ Of

course, there is a great feeling of pride in having a team, but we

also have to recognize that doesn’t necessarily create jobs or raise

revenues or grow the economy.

One of the things that I said back in Cleveland years ago when

the debate was going on over the building of sports facilities is

that, instead of building money for a new facility, just issue bonds

to buy the team. That way you don’t worry about a team leaving,

and that way the public owns the team. Then if the team goes to

the World Series, then the public shares in that revenue. Then you

drive down the price of tickets. There are all kinds of ways you can

do this.

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But instead what has happened is that the taxpayers get the bill

for the stadium. Even worse than that, you have corporations that

buy naming rights to make it appear as though they built the stadium. So what you get is the public gets the bills and the owners

of the sports team get these huge profits.

It is indisputably clear that public subsidies enrich the private

owners of the teams. Look at the Detroit Tigers and Detroit Lions.

The value of the Tigers rose from $83 million in 1995 to $290 million in 2001, the year after the team moved into their new stadium.

The Lions increased in value after moving into a new stadium even

more dramatically from $150 million in 1996 to $839 million in

2006.

Economic benefit to the teams’ owners was certainly the case for President Bush, who in 1989 spent about $600,000 to buy a small

stake in the Texas Rangers baseball team. During his ownership,

Mr. Bush and his co-investors were able to get voters to approve

a sales tax increase to pay more than two-thirds of the cost of a

new $191 million stadium for the Rangers, as well as the surrounding development.

Mr. Bush and his partners also received a loan from the public

authority charged with financing the stadium to cover their private

share of construction costs. By 1994, the Rangers, in their new

publicly financed stadium, were sold for $250 million, a threefold

increase in value in nearly 5 years, and one that was largely attributable to the new taxpayer-subsidized stadium. Mr. Bush personally came away with a profit of $14.9 million. In this case, the taxexempt financing indisputably benefited the owners of the Texas

Rangers.

How is it that critical infrastructure needs go unfunded while

luxuries like professional sports stadiums are subsidized heavily?

The first part of the question has been the subject of considerable

discussion dating back to the 1980’s. For instance, in an article entitled, ‘‘Holding Government Officials Accountable for Infrastructure Maintenance,’’ Ned Regan, the long-time Republican Comptroller of the State of New York, wrote: ‘‘Maintenance budgets are

routinely starved by government at all levels. Neglect, not age, is

the root cause of most infrastructure failures in this country. Simply put, deferring maintenance is a handy expedient for public officials faced with problems in balancing their budgets.’’

Now, Regan identifies two problems that account for that. The

first is that politicians like to get credit for what they do, and the

credit is more noteworthy when you can cut the ribbon at the opening of a new facility.

He writes: ‘‘Maintenance activities, while undeniably in the public interest, tend to be regarded as having low visibility and correspondingly low political payoff. A television news editor, for example, is not likely to be interested in bridge maintenance. Moreover, the consequences of the failure to scrape and paint a bridge

in a particular year are not evident at the time. People do not

think that the bridge might collapse in the next year.’’

The second problem is the lack of systematic funding, a lack of

a democratic and transparent process in which infrastructure needs

are evaluated. There is no process whereby decisionmakers know,

based on sound evidence and rigorous analysis, what maintenance

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requirements are and what the costs of neglecting maintenance are

likely to be. Such information could then be considered in light of

available resources when determining maintenance budgets. That

is accompanied by a lack of public information. ‘‘As long as the public remains uninformed about the extent to which public assets are

not being safeguarded, public officials will be encouraged to continue the prevailing pattern of neglect.’’

This is the second time this subcommittee has examined the

merits and costs of public financing of professional sports stadiums.

At our March 29, 2007, hearing we examined the effectiveness of

Congress’ last attempt to curb the use of tax-exempt financing for

construction of professional sports stadiums. In 1986, Congress

passed the Tax Reform Act, which changed the rules on tax-exempt

financing. Basically, the act excluded professional sports stadiums

from a list of exceptions to taxable private activity bonds. That

should have closed the matter, but sports stadiums continue to be

built with more and more public money, according to Professor

Long.

When we discussed this specific case in detail with the Chief

Counsel of the Internal Revenue Service, who is in charge of enforcing the regulations on tax-exempt financing, we discovered that

a significant loophole was being exploited that permitted professional sports teams the benefit of tax-exempt financing for sports

stadiums and their exclusive, private use. In that hearing we questioned the Chief Counsel about a private letter ruling that enabled

the New York Yankees to benefit from a tax-exempt financing of

the new Yankees Stadium and a construction cost saving of $189.9

million, according to New York City’s Independent Budget Office.

Obviously, the 1986 act did not have the intended effect of curbing public financing of sports stadiums’ construction. As Dennis

Zimmerman testified at our previous hearing, ‘‘Since local taxpayers were expected to be reluctant to use general obligation debt

to pay for stadium debt service, stadium bonds would wither. Unfortunately, the expectation was overwhelmed by the combination

of monopoly power to professional sports leagues that maintains

excess demand for franchises and stadium proponents’ use of pseudo-economic studies showing that stadiums pay for themselves.’’

Clearly, there is more work to be done. Our bridges should be

safe. Our children’s school buildings should be safe and conducive

to learning. And the owners of professional sports teams should

pay for their own stadiums. To the extent that the use of public

money to finance professional sports stadiums diverts funds and attention away from maintaining critical public infrastructure, my

hope is that these hearings will contribute to fixing the problem,

focusing a discussion on the kind of investment that goes into these

facilities, asking about the specific economic benefits to the community, especially those that were promised at the beginning of the

construction of many of those projects, and asking the question

about how do we meet the diverse needs in the community, particularly where there is aging infrastructure.

Middle America, there are bridges that are falling, there are

roads that are in ill repair, there are schools that are crumbling;

yet, we see this tremendous push being made to try to put hundreds of billions of dollars into sports stadiums.

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While we love our local teams and we have a great deal of commitment and pride in our local teams, we also know that the public

infrastructure that is needed in order to provide jobs, to increase

business activity in a community, has to be maintained, and that

infrastructure is crumbling. The money generally comes from local

and State governments, the same place where a lot of these funds

to build these facilities are coming from.

So with that we are going to go to the first panel.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. KUCINICH. Again, for those who just joined us, Mr. Issa had

asked me to proceed with this hearing in the anticipation that he

will be joining us. I am going to proceed.

I am pleased to have a distinguished panel of witnesses here to

address whether professional sports stadiums divert public funds

from critical public infrastructure. On today’s first panel the subcommittee is pleased to have the following witnesses. First of all,

Mr. Eric Solomon. Mr. Solomon was sworn in as Assistant Secretary for Tax Policy, Department of Treasury on December 12,

2006. He joined Treasury’s Office of Tax Policy in October 1999 as

Senior Advisor for Policy. He subsequently served as Deputy Assistant Secretary, Tax Policy, and Deputy Assistant Secretary, Regulatory Affairs, prior to his December 2006 appointment as Assistant Secretary for Tax Policy.

Mr. Solomon previously served at the Internal Revenue Service

from 1991 to 1996 as Assistant Chief Counsel, heading the IRS

legal division with responsibility for all corporate tax issues, and

as Deputy Associate, Chief Counsel, Domestic Technical.

Mr. Solomon was a partner at Ernst and Young, LLP, where he

was a member of the Mergers and Acquisitions Group of the National Tax Department in Washington, DC. He received his A.B.

from Princeton, his J.D. from University of Virginia, his LLM in

taxation from New York University. Before joining Treasury he

was a member of the Executive Committee of the Tax Section of

the New York State Bar Association, adjunct professor at Georgetown, teaches a course in corporate taxation.

In 2006 he received the Distinguished Executive Presidential

Rank Award in recognition of his exceptional career accomplishments at Treasury.

Mr. Arthur Rolnick is a senior vice president and director of research at the Federal Reserve Bank of Minneapolis, an associate

economist with the Federal Open Market Committee. As a top official of the Federal Reserve Bank, Mr. Rolnick regularly attends

meetings of the Federal Open Market Committee, the Federal Reserve’s principal body responsible for establishing national money

and credit policies.

Mr. Rolnick’s essays on such public policy issues as Congress

Should End the Economic War Amongst States, a plan to address

the ‘‘too big to fail’’ problem, and the economics of early childhood

development have gained national attention.

His research interests include banking and financial economics,

monetary policy, monetary history, the economics of federalism,

and the economics of education. He has been a visiting professor

of economics at Boston College, the University of Chicago, the University of Minnesota. Most recently he was an Adjunct Professor of

Economics at the MBA program at Lingnan College in Guangzho,

China and the University of Minnesota’s Carlson School of Management. He is Past President of the Minnesota Economic Association, serves on several nonprofit boards, including Minnesota Council on Economic Education, Greater Twin Cities United Way, Citizen’s League of Minnesota, and Ready 4K, an advocacy organization for early childhood development. He is on the Minneapolis Star

Tribune’s Board of Economists, a member of the Minnesota Council

of Economic Advisors.

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He has had numerous awards for his work in early childhood development, including being named 2005 Minnesotan of the year by

Minnesota Monthly Magazine.

A native of Michigan, Mr. Rolnick holds a bachelor’s degree in

mathematics and a master’s degree in economics from Wayne State

University in Detroit. He has a doctorate in economics from the

University of Minnesota.

I read at length for those who are in attendance the qualifications of these two witnesses because you need to understand that

the individuals about to testify are people that have extensive

backgrounds in the issues that are before this subcommittee.

I want to thank them for being here.

Gentlemen, it is the policy of the Committee on Oversight and

Government Reform to swear in all witnesses before they testify.

I would ask that you rise and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Thank you, gentlemen.

Let the record show that the witnesses answered in the affirmative.

I would ask that the witnesses now give a brief summary of their

testimony. Keep your summary under 5 minutes in duration. Your

complete written statement will be included in the hearing record.

Mr. Solomon, you will be our first witness, and I ask you to proceed.

STATEMENTS OF ERIC SOLOMON, ASSISTANT SECRETARY FOR

TAX POLICY, DEPARTMENT OF TREASURY; AND ARTHUR J.

ROLNICK, SENIOR VICE PRESIDENT AND RESEARCH DIRECTOR, FEDERAL RESERVE BANK OF MINNEAPOLIS

STATEMENT OF ERIC SOLOMON

Mr. SOLOMON. Mr. Chairman, thank you for the opportunity to

appear before you today to discuss important Federal tax issues regarding tax-exempt bond financing.

Tax-exempt bonds play an important role as a source of lowercost financing for State and local governments. The Federal Government provides a significant Federal subsidy to tax-exempt

bonds through the Federal income tax exemption for interest paid

on these bonds, which enables State and local governments to finance public infrastructure projects and other public purpose activities at lower cost.

The cost to the Federal Government of tax-exempt bonds is significant and growing. Unlike direct appropriations, this Federal

subsidy is not tracked in the appropriations process. Tax-exempt

bonds also are less efficient than direct appropriations because of

pricing inefficiencies. The steady growth in the tax-exempt bond

volume reflects the importance of this incentive for public infrastructure. At the same time, it is appropriate to ensure that the

Federal subsidy for tax-exempt bonds is properly targeted and is

justified in light of its significant Federal cost.

I will touch briefly on the legal framework for tax-exempt bonds.

I then will highlight certain tax policy considerations regarding

tax-exempt bonds in general and stadium financing in particular.

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The statute provides for two basic types of tax-exempt bonds:

governmental bonds and private activity bonds. The current legal

framework under the code treats bonds as governmental bonds if

they are either used primarily for State or local governmental use

or payable primarily from governmental bonds. Thus, the code generally treats bonds as private activity bonds only if they exceed

both a 10 percent private business use limit and a 10 percent private payments limit.

Tax-exempt governmental bonds may finance a wide variety of

projects. Tax-exempt private activity bonds may only finance specific types of projects authorized by the code. Most private activity

bonds are subject to an annual State bond volume cap. State and

local governments often finance traditional public infrastructure

projects with governmental bonds based on governmental use of

those projects. By comparison, they finance stadiums used for private business use with governmental bonds based on governmental

payments for the bonds, including general taxes.

Next I want to highlight certain tax policy considerations. Here

it is important to keep in mind that the tax-exempt bond provisions

under the existing statutory framework implement a key policy to

give State and local governments needed flexibility and discretion

to finance a range of projects with governmental bonds and public/

private partnerships when they determine that the projects are important enough to warrant commitment of State or local governmental funds.

At the same time, it is important to properly target and justify

the Federal subsidy for tax-exempt bonds. The tax policy justification is strongest for traditional public infrastructure projects with

clear public purposes. The justification is weaker for projects that

lack a clear public purpose or that provide significant benefits to

private businesses.

Some have asserted that the availability of governmental bonds

for stadiums with significant private business use represents a

structural weakness in the targeting of this important Federal subsidy. Several options could be considered to target the tax-exempt

bond subsidy further to limit the use of governmental bonds for

stadium financing.

One option that Congress could consider would be to repeal the

private payments in the private activity bond definition for stadiums only. This possible change would prevent use of governmental

bonds to finance stadiums when private business use exceeds 10

percent.

In its January 2005 tax reform options, the Joint Committee on

Taxation included this option to repeal the private payments limit

for stadium financing.

A second option that Congress could consider would be to allow

tax-exempt private activity bonds to finance stadiums under the

bond volume cap. This option would require stadiums to compete

with other projects for bond volume cap. This option could be combined with the first option to allow governmental bonds for governmentally used stadiums and private activity bonds for privately

used stadiums.

A third option that Congress can consider would be to ban taxexempt bond financing for professional sports stadiums altogether.

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Prior legislative proposals have suggested this option, but these

proposals have never been enacted into law.

A final, broader possible option that Congress could consider

would be to repeal the private payments limit in the private activity bond definition altogether. This possible change would eliminate

use of governmental bonds for all projects when private business

use exceeds 10 percent. This would affect stadiums and all other

types of projects with significant private business use that otherwise could be financed with governmental bonds based on governmental payments. The Joint Committee on Taxation’s January

2005 proposals also discuss this broader option.

At this time the administration does not take a position on any

specific policy option on possible legislative changes. This topic

raises difficult questions which will require the balancing of interests of State and local governments in having flexibility to determine what projects are appropriate and the Federal interest in effectively targeting this Federal subsidy.

In conclusion, the administration would be pleased to work with

the Congress in reviewing possible options to try to improve the effectiveness of this important Federal subsidy for tax-exempt bonds.

Thank you, Mr. Chairman, for the opportunity to appear before

you today. I would be glad to answer any questions.

[The prepared statement of Mr. Solomon follows:]

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Mr. KUCINICH. Thank you, Mr. Solomon.

Mr. Rolnick.

STATEMENT OF ARTHUR J. ROLNICK

Mr. ROLNICK. Thank you, Mr. Chairman and members of the

subcommittee, for having me here today.

Before I begin, let me say the views that I am about to express

are my own and not necessarily those of the Federal Reserve Bank

of Minneapolis or the Federal Reserve system.

There is likely no major metropolitan area in this country that

has not been held hostage at some point by the owner of a sports

franchise who threatened to move his team elsewhere if he did not

receive a new taxpayer-funded sports complex. Indeed, such economic blackmail even affects many of our smaller communities, as

minor league sports teams have also learned to play this rent-seeking game.

Being from Minnesota, I can personally attest to this rent-seeking game as the Minnesota Twins, after a 10-year campaign, finally

persuaded a previously reluctant State legislature to hand over

about $400 million in public financing for a new stadium that is

now under construction. Not to be outdone, the Minnesota Vikings

are currently pressing the legislature for their own share of public

largesse, and who can blame them. As long as governments are

willing to hand over limited public resources, these teams would be

foolish not to accept them.

But make no mistake: it is not just sports teams that demand

public money from cities and States. The State and local funds

spent competing for sports franchises, though conspicuous, probably represent only a fraction of the billions of dollars spent on

more than 8,000 State and local economic development agencies

competing to retain and attract businesses through the use of preferential—and let me underline preferential—taxes and subsidies.

Businesses know they can get public funding by threatening to

move, forcing State and local governments into competition for

business that has become economic warfare.

To be clear, from a national perspective, the so-called economic

bidding war among States does not create jobs. It only moves them

around from one city to another, from one State to another. This

is what economists call a zero sum game. It is a zero public return.

Indeed, it may be a negative sum game.

While States spend billions of dollars to retain and attract businesses, State and local governments struggle to provide such public

goods as schools and libraries, public health and safety, and the

roads, bridges, and parks that are critical to the success of any

community. Indeed, we in Minnesota have special cause to speak

to the importance of adequate funding for infrastructure following

the tragic collapse of the I–35 W bridges over the Mississippi River.

Something is wrong with this picture, and I am going to argue

only Congress can fix it.

I am here today largely to discuss the wasteful nature of this bidding war among States and to offer a recommendation to end this

inefficient use of scarce public resources. However, in addition, I

will briefly offer a proposal for the best use of public resources for

economic development—that is early childhood development. I will

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argue that you should think of early childhood development as economic development with an extraordinary public return. I offer

more description in my full testimony that has been submitted to

the subcommittee.

To begin, it is important to recognize that not all competition

among State and local governments is bad. Competition for businesses through general tax and spending policies—that is, policies

that are non-preferential that apply to all business—is beneficial.

So, for example, we want Minnesota and Wisconsin competing to

see which State can offer the best public education at the lowest

cost. Such competition helps State and local governments determine the amount and quality of public goods for which their citizens are willing to pay and to provide these goods efficiently.

But from a national perspective, when competition takes the

form of preferential treatment for specific businesses, it creates, at

best, a zero sum game. It is more likely to create a competitive

game, in fact, that mis-allocates private resources and causes State

and local governments to provide too few public goods.

When a business is enticed by being offered preferential favors

to relocate, there is no net gain to the overall economy. Jobs are

simply moved from one location to another. Furthermore, on closer

examination, there will be a loss. There will be fewer public goods

produced in the overall economy because in the aggregate States

will have less revenue to spend on public goods. In addition to the

loss of public goods, the overall economy becomes less efficient because output will be lost as some businesses are enticed to move

from their best locations.

Moreover, it is assumed in my remarks so far that States have

the information to understand the businesses they are courting. In

practice, States have much less than perfect information, assuming

States are so handicapped they will finance some businesses that

private markets deem too risk to fund.

How can this economic bidding war among State and local governments be brought to an end? The States won’t, on their own,

stop using subsidies and preferential taxes to attract and retain

businesses. As long as a single State engages in this practice, others will feel compelled to compete. Only Congress, under the Commerce Clause of the Constitution, has the power to enact legislation

to prohibit States from using subsidies and preferential taxes to

compete with one another for businesses, and only Congress can

enforce such a prohibition.

There is a congressional precedent for such action. In 1999, thenRepresentative David Minge of Minnesota introduced the Distorting Subsidies Limitation Act. This bill would end these harmful

subsidies by, in effect, taxing them out of existence. Under the bill,

subsidies provided by a State or local government to a particular

business that is a preferential subsidy to locate or to remain within

the business jurisdiction would be taxed at such a level so as to

render the subsidy moot. For example, if the subsidy was taxed at

100 percent, they would be rendered ineffective. State and local

governments would thus lay down their arms in this escalating economic war and the resulting truce would benefit all society.

If the subsidy war is the wrong way to promote economic development, what is the right way? The tried and true investments

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that have served economies well, especially since the second half of

the 20th century, are public investments in human capital. To that

end, it is also time for congressional action on proposals to increase

funding for at-risk kids for early childhood education. These proposals have gained national attention in recent years because of

the overwhelming research by neuroscientists on brain development and by economists on economic returns to high-quality early

education programs. We have estimated the annual rate of return

on a high-quality early education program, inflation adjusted, to be

as high as 18 percent.

In summary, the evidence is clear: compared with billions of dollars in public subsidies to professional sports teams and other private businesses, investment in our infrastructure, both physical

and human, especially investment in early childhood development

for at-risk children, is real economic development, and it is economic development with a very high public return.

Thank you for this opportunity to testify on this important policy

issue. I look forward to answering questions.

[The prepared statement of Mr. Rolnick follows:]

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Mr. KUCINICH. Thank you very much for your testimony, Mr.

Rolnick and Mr. Solomon.

Before we go to questions, I want to acknowledge the presence

of Mr. Davis and Mr. Tierney and Mr. Cummings. Thanks to all

of you for being here.

If the gentlemen have an opening statement, we will be glad to

include it in the record.

At this point we are going to go to questions. I will begin with

Mr. Solomon.

I think that I should be relieved to learn from the written testimony that ‘‘the tax policy justification for a Federal subsidy for taxexempt bonds is weaker when State or local governments use governmental bonds to finance activities beyond traditional governmental functions, such as a provision of stadiums, in which the

public purpose is more attenuated and private businesses receive

the benefits of the subsidy.’’ That is a direct quote.

I think that means that you don’t think that building professional sports stadiums with public money is a good idea when the

traditional government function of making sure bridges are safe

isn’t being fulfilled. Is that a fair rendering of your position?

Mr. SOLOMON. Mr. Chairman, you raise very important policy

concerns, because it is necessary to ensure that the tax-exempt

bond program is properly targeted so that it is most effectively

used and so that the Federal subsidy is justified in light of the revenue costs and the other costs imposed.

What Congress has done, what the Internal Revenue Code does

is it strikes a balance between two different interests. One interest

is that it wants to target the use of tax-exempt bonds to critical

projects, critical governmental projects, but at the same time, the

statutory structure of the Internal Revenue Code does provide currently flexibility and discretion for State and local governments to

finance projects that do have private use if the State or local government finds the project sufficiently important to warrant the

commitment of State and local government funds to carry out those

projects.

So the current structure of the Internal Revenue Code does permit, in situations where there is some private use, it permits State

and local governments to decide to go forward with tax-exempt

bonds when there is a commitment to use governmental funds.

Mr. KUCINICH. Right. I understand that. Nevertheless, Federal

taxpayers will subsidize sports stadiums’ construction to the tune

of about $2 billion, according to the written testimony of Professor

Long. What did Federal taxpayers receive in exchange for that?

Mr. SOLOMON. Well, what the code does is it leaves it to the discretion. The current Internal Revenue Code leaves to the discretion

of State and local governments to make the decision whether or not

these projects are sufficiently important.

I would also just want to add, as an observation, a GAO report

in 2006 noted that there were about $5.3 billion of stadium tax-exempt bonds. Total, there are about a trillion dollars in governmental bonds.

Mr. KUCINICH. Trillion?

Mr. SOLOMON. Trillion.

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Mr. KUCINICH. OK. Well, I would like to go to this issue of the

benefit principle of taxation. You are familiar with that. In part,

it is based on the idea that those who benefit from services should

be the ones who pay for them. Now, let’s say that City A is told

by the owner of a professional sports team that they will have to

finance a new stadium or the team will leave, and let’s further say

that City B offers twice as much to the team to lure it away from

City A.

Now, of course, all the bond financing offered by City B and City

A, if they choose to give the team what it wants, will be tax exempt. Apply the benefit principle of taxation to this transaction.

How do Federal taxpayers benefit from the team moving to City B

or, for that matter, staying in City A with a new stadium? How do

they benefit?

Mr. SOLOMON. Well, the current structure of the Internal Revenue Code leaves discretion to the State and local governments to

make these decisions, and that is part of the framework. We

present in our written testimony possible options that one might

consider if one were to decide that it is inappropriate policy.

Mr. KUCINICH. So you really can’t say, is what you are saying?

Mr. SOLOMON. I am not an expert on local economic issues of the

determinations that State and local governments make as to what

appropriate projects are.

Mr. KUCINICH. Let me try one more question.

Mr. SOLOMON. Sure. Of course.

Mr. KUCINICH. If the economists are right that building professional sports stadiums do not raise incomes, create jobs, or increase

revenues, while new ball parks do increase the value of the team

franchise, would you say that building a professional sports stadium is mostly a private activity, or is it a public activity?

Mr. SOLOMON. State and local governments and those who are in

State and local government need to make these decisions. And they

make these decisions not necessarily on dollars and cents.

Mr. KUCINICH. I see. I got it. I got it. I know where you are coming from.

Mr. Rolnick, would you like to answer that question?

Mr. ROLNICK. Well, our State and local officials are in a difficult

position. If you are the Governor of Minnesota, you don’t want to

lose the Minnesota Vikings. Even if I convince my Governor that

it is not a question of jobs, it is very difficult to stand back if another State is going to build a new stadium. So, as I said in my

earlier remarks, we put our State and our local officials in difficult

positions, and as a result the professional sports teams have been

very good at playing one city off against another and one State off

another. My estimate is about 80 percent of professional sports facilities have been built with public money, and that is because they

are very good at playing this game.

There is no public benefit here, Mr. Chairman. Your question,

the way you raise it, is correct. This is not a public good. These are

private goods and they would be produced if we ended the bidding

war.

Mr. KUCINICH. Mr. Solomon, do you want to add something?

Mr. SOLOMON. Mr. Chairman, yes, if I might just add one point.

Mr. KUCINICH. Sure.

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Mr. SOLOMON. This issue is broader than just stadiums. This

issue arises with respect to other kinds of redevelopment projects.

Mr. KUCINICH. Right.

Mr. SOLOMON. We are focusing today on stadiums, but it could

be other kinds of redevelopment.

Mr. KUCINICH. We understand.

Mr. SOLOMON. We will have the same kinds of policy issues.

Mr. KUCINICH. Right. I mean, that point was made in the testimony.

I am going to go to Mr. Issa.

Thank you for joining us. The ranking member, the gentleman

from California.

Mr. ISSA. Thank you, Mr. Chairman. Again, I apologize. Because

of two markups in 1 day, I have been going between two other

places.

Mr. Chairman, I would ask unanimous consent that my written

opening statement be put in the record.

Additionally, the part you can’t just have in the record is a

wholehearted congratulations to the chairman on the performance

of the Cleveland Indians. As someone born and raised in Cleveland

and someone who was born in 1953—and that was a good year for

Cleveland. We went through a few bad years after that. But certainly, regardless of this being the second hearing and the second

question on Jacobs Field and plenty of other places, I think we can

both, as Clevelanders, take pride in the performance of the Indians.

I just want to make sure that got in the record.

Mr. KUCINICH. You know what? I want to thank my good friend

for pointing that out, and I would like to further say that Jacobs

Field didn’t make the Indians; the Indians made Jacobs Field.

Thank you.

The gentleman may proceed.

Mr. ISSA. Thank you.

I am going to just broaden the subject, Mr. Solomon, because I

think you are exactly right. We provide tax-free municipal bonds

to build schools, don’t we?

Mr. SOLOMON. That is correct.

Mr. ISSA. And kids graduate from high school and leave Cleveland, like me to go to California. I graduated from Kent State, left.

So Kent State’s bonds to build university facilities, in fact, may

have benefited southern California and the companies I built out

there, but, in fact, it was paid for primarily Federal offset, but also

Ohio State offset for those bonds; isn’t that right?

Mr. SOLOMON. Correct.

Mr. ISSA. And that goes for noise abatement retaining walls. It

goes for lots of things which are at least partially financed by debt

instruments sold with Federal and State exemptions. So I guess

the first question is: should we, in fact—and this may be what you

were leading to—question what narrow, dramatically, what in fact,

can receive at least Federal tax exemption, since today everything

a State chooses to go into debt for is a benefit subject, of course,

only to the AMT where we sometimes get back what we lose elsewhere?

Mr. SOLOMON. Just to add to the point that I made before, again,

to broaden our conversation is this issue with respect to situations

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whether private use, State and local governments are permitted to

issue tax-exempt bonds where the decision is made to use public

funds.

And it is not limited to situations with stadiums. It includes convention centers and all sorts of other kinds of projects. The question is how much discretion should be left to State and local governments to make these decisions. And one might make a decision,

a policy decision with respect to stadiums, might make a different

policy decision for other kinds of decisions. But the question is how

much and how specifically you might want to limit that authority.

Mr. ISSA. Well, let me ask a question that sort of goes to the one

thing that I think we all understand, which is cities can’t print

money. States can’t print money. Only the Federal Government

prints money, so only the Federal Government can essentially monetize its debt; is that correct in your analysis?

Mr. SOLOMON. Well, the Federal Government——

Mr. ISSA. I know we don’t officially monetize our debt, but we

certainly have the ability to. We could monetize our debt. We have

no limit to the amount of debt that we can take on at the Federal

level, but, more specifically, States and local governments have

debt ratings. If they get too much debt relative to their current

earnings, income, and taxes, they ultimately pay a higher percentage and they reach a cap where they can no longer borrow; is that

correct?

Mr. SOLOMON. Well, I am not an expert on State and local government financing, but certainly, to the extent that State and local

governments take on too much debt, it creates difficulties.

Mr. ISSA. So I will just ask it as a closing question, because we

are going to run out of time before the vote. Essentially, the one

thing that we are leaving out of this equation is that cities, using

cities exclusively here for a moment, cities make a decision about

where to invest their debt, and if they invest, as the city of San

Diego did, in a number of projects, including a significant new convention center and PetCo Park—looks like Jacobs Field, only with

a little more sunny days—in San Diego—and the Padres are doing

OK, too, but thank you.

The fact is, they made that decision. They used up a certain

amount of debt they could have. And if those debt instruments pay

no dividends, pay no revenue, then they are paying for them out

of their general fund, so they particularly do that. The cities make

that decision.

Why, in your opinion, are cities making that decision if it is a

bad business investment? What do you think the real reason that

cities are voluntarily doing this and continuing to do this bidding

process?

Mr. SOLOMON. Because the cities believe that there are various

benefits. Perhaps they cannot be specifically identified, but there

are various and tangible benefits. Of course, there are political constraints on their decisions, as well as financial constraints.

Mr. ISSA. Thank you.

Thank you, Mr. Chairman. This really is an opportunity for us

to question not just the bigger picture of the tax structure, but I

really appreciate the fact that you have given us a chance to look

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at how various cities either are or are not spending their money

wisely, and I appreciate it.

Mr. KUCINICH. And I thank the ranking member.

Mr. Tierney, if he has questions, is recognized.

Mr. TIERNEY. I will be happy to do so.

Mr. Kucinich, I would be happy to invite both of you Indians fans

to Fenway Park Friday and Saturday night where it is obvious you

will be getting a thumping, the Indians.

Mr. KUCINICH. You are out of order, of course. [Laughter.]

Those are such famous last words.

Mr. TIERNEY. Yes, they have been some time in the past.

Mr. KUCINICH. Where is the gavel? OK. Go ahead.

Mr. TIERNEY. Mr. Solomon, thank you, and thank you also, Mr.

Rolnick. I appreciate your testimony here today.

Mr. Solomon, you made some suggestions in your written testimony that I welcome, and I notice that most of the solutions that

you proposed are statutory in nature. I am wondering why that is.

Don’t you feel as though you could do more on the regulatory basis

using your existing powers?

Mr. SOLOMON. Our job is to interpret the statutory framework,

and the statutory framework we believe is clear that the statute

and the legislative history are clear that bonds, in a situation

where there is private use, can nevertheless qualify as governmental bonds as long as the bonds are paid from governmental

funds, including generally applicable taxes. So we believe that the

statute and legislative history put that constraint upon us.

The 1986 legislative history is very clear that a bond can still be

treated as a governmental bond, even if there is private use, as

long as the bonds are paid from generally applicable taxes.

Mr. TIERNEY. So are you indicating that you don’t think that you

could just determine that a PILOT that was used specifically for

stadium construction is not generally used for public purpose and

make that determination? Do you feel constrained from doing that?

Mr. SOLOMON. We do not think that we could write regulations

that say that stadium financing cannot be done through the use of

public funds. We do not believe that we have that authority. And

so if a stadium is financed and the State or local government says

it will come out of general taxes or their equivalent, which are the

PILOTs, the payments in lieu of taxes, we don’t think we can

change that rule. That will require Congress to change that rule.

That structure is built into the fabric of what was done in 1986.

In 1986, Congress said you can’t use private activity bonds for

these kinds of activities, but, nevertheless, Congress nevertheless

left the flexibility to say that you can engage in these activities

using governmental bonds as long as the governmental bonds are

paid for with general governmental funds.

Mr. TIERNEY. Thank you for that.

I yield back, Mr. Chairman. Thank you.

Mr. KUCINICH. All right.

I thank the gentleman. I just want to ask a quick question here

on what Treasury was trying to do with the PLR and the rule

change.

Mr. Solomon, there are two accounts of the IRS’s attempt to regulate PILOTs for stadium construction, one presented by Mr. Korb

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in his March 29th testimony to this committee, and a contrary account that I believe is more consistent with the regulatory history.

Mr. Korb repeatedly testified that the IRS was compelled by the

1997 regulations to conclude for its 2006 private letter rulings that

PILOTs used to pay for bonds issued to finance stadium construction should be treated as generally applicable tax and not a special

charge.

He further testified that the proposed regulations were designed

to close the loophole and make it more difficult to use PILOTs.

Under the contrary account, the IRS’s issuance of the private letter

rulings in 2006 made it easier, not tougher, to publicly finance stadiums by explicitly allowing stadiums to be financed by PILOTs

made by the teams, instead of the previous practice of financing

stadiums through the imposition of taxes borne generally by the

public, like entertainment and sales taxes.

The private letter rulings, far from being compelled by the 1997

regulations, presented a new and arguably impermissible interpretation of them and prompted the IRS to propose regulations that

would put PILOTs on a firmer regulatory footing. This account is

supported by a number of facts, many of which are ignored by Mr.

Korb, including the fact that the proposed regulations would delete

the following sentence from the existing regulation. Here it is: ‘‘For

example, a PILOT made in consideration for the use of property financed with tax-exempt bonds is treated as a special charge.’’ This

language suggests that PILOTs should not be permitted to fund

stadium construction.

Because a full response to this question is not possible here,

given the time constraints, I am going to present this question to

you in a more-detailed form of a letter, and I wonder if you have

any basic view on which of these accounts is more accurate.

Mr. SOLOMON. Very briefly, the private letter rules issued by the

Internal Revenue Service to private taxpayers preceded the proposed regulations. Proposed regulations were intended to tighten

the rules, to tighten the rules with respect to payments in lieu of

taxes, to cut back on the use of payments in lieu of taxes. So chronologically the private letter rules preceded the proposed regulations. The proposed regulations are intended to tighten the standard for treating payments in lieu of taxes as the equivalent of general taxes.

Mr. KUCINICH. I thank the gentleman. We will followup with

that letter.

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Mr. KUCINICH. We are going to have to recess. We have a number of votes. Staff informs me a 45-minute recess would be appropriate.

We are done with Mr. Solomon. Mr. Solomon, do you have to

leave?

Mr. SOLOMON. I have to leave at 4, so I could stay for a while.

Mr. KUCINICH. Well, I am going to ask you gentlemen if you can

stay. It is up to you. I don’t have any more questions of you, but

I do have some questions of Mr. Rolnick.

Mr. ROLNICK. We will come back.

Mr. KUCINICH. We will come back, so the committee is recessed

for 45 minutes. Thank you.

[Recess.]

Mr. DAVIS OF ILLINOIS [presiding]. The meeting will return to

order. Who knows? Our chairman may very well have been summoned by a reporter who wanted to know about the White House

and things like that. The chairman has not made it back, and so

we will try to begin, because I wanted to get a question in to Mr.

Solomon if I could before he had to leave.

Mr. Solomon, prior to the 2006 IRS private letter ruling for the

Yankee Stadium, had any tax-exempt stadium construction debt

been serviced with a payment in lieu of taxes?

Mr. SOLOMON. I do not know the answer to your question, Congressman. The private letter rule process is run by the Internal

Revenue Service. I am in the Office of Tax Policy. I could get back

to you with respect to the answer to your question, but I would

have to ask them and I would have to research the private letter

rulings. So what I would do is I would go to the IRS, their rulings

branch, and ask them what they have done in this area. I am sorry

that I can’t answer your question off the top of my head.

Mr. DAVIS OF ILLINOIS. All right. We would appreciate if you

could send us the answer to that in writing.

Mr. SOLOMON. Yes, sir.

Mr. DAVIS OF ILLINOIS. You also testified that you have proposed

rulemaking that would tighten the PILOT rules. If those rules had

been in effect when the Yankees’ representatives applied for a private letter ruling, would they have been able to use a PILOT to

service those bonds?

Mr. SOLOMON. I can’t speak about any particular taxpayers because of matters of taxpayer confidentiality. I can tell you that the

proposed regulations do state that a fixed payment cannot qualify

as a payment in lieu of taxes, so a fixed payment, rather than one

that is tied to property taxes, that is either tied to valuation either

in proportion evaluation or a certain amount different from what

would be charged for property taxes, a fixed payment would not

qualify under the proposed regulations, which is a tightening of the

rules.

Mr. DAVIS OF ILLINOIS. All right. Thank you.

Mr. Rolnick, let me ask you, if I could, when public resources are

used to finance or subsidize private deals, what should be the expected return? I mean, what should the public expect in return for

that investment? I mean, you would have to call it an investment

or a give-away, in a sense, but I would call it an investment. What

should the public expect in return?

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Mr. ROLNICK. Address the question of public investments, public

funds going to private investment. Where you stand matters a lot.

If you are looking, do you think very parochial view? If you are the

city of St. Paul and you attract a new software company, that creates jobs in the city. It has multiplier effects, meaning the new

jobs, people spend money, and it is a way to enhance your economic

activity, and actually you might end up with more revenue that

way to provide the public services you want, and that is usually the

rationale.

The problem with that perspective, it falls apart pretty quickly

once you take a broader perspective. Suppose, for example, the

company that you just lured to St. Paul came from Minneapolis, so

the positive effects in St. Paul are negative effects in Minneapolis.

The positive multiplier effects in St. Paul are negative multiplier

effects in Minneapolis.

So from the State’s point of view—so you are not wearing your

city hat, if you will, you are wearing your State hat, you are the

Governor of the State and you are watching public money, which

you desperately need for your public infrastructure or you could

use to lower taxes for all businesses. You are getting a zero public

return. Even though St. Paul is going to get positive return, Minneapolis is getting a negative return.

In total, if by the public you mean the citizens of the State, there

is a zero return. In fact, as I argued earlier, you could make the

case it might be negative because you are interfering in market location decisions, and many times I would argue these subsidies are

bluffs. That is, it would have happened, anyway, even without the

incentives.

Every once in a while the incentives do affect a location decision,

and you have to wonder if that is the best location decision for that

company.

So your question, at a parochial level it might look like a positive

return, but once you look at a broader level it is a zero return and

maybe a negative return to the public.

Mr. DAVIS OF ILLINOIS. Well, let me ask, What if the proposers

are suggesting that you are going to draw people into the area who

otherwise would not come, and that there is going to be some residual impact that will go to other places outside of what it is that

you are primarily dealing with.

Mr. ROLNICK. Mr. Chair, I think you still run into the same problem. Where are they coming from? In Minnesota, for example, we

now have something called the Job Z Zone, which is to try to promote economic development in out-State Minnesota with subsidies

and preferential tax treatment, and some of the relocation would

have happened anyway. Some of it is coming from the Twin Cities.

Some of it is coming from Wisconsin. So guess what? The State of

Wisconsin now has their Job Zone, and they are now attracting

companies from Minnesota to go to Wisconsin.

So at the end of the day, if you look at the big picture of the

game, the winners are these companies that are footloose and are

able to take advantage of playing one city or one State off against

another, but the public is not benefiting. There is no new jobs

there; they are just being moved around.

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If there are spill-over effects, the market is very good at capturing spill-over effect synergies by being around other companies.

They know that. Companies are very good at location decisions.

Generally speaking, the best companies, the ones that are going to

create their jobs in the future, they want to be around educated

workers, they want to be around highly educated, institutional arrangements so that I have argued for many years the best way to

promote an economy locally, regionally, nationally, and internationally is to do a better job educating your kids and educating your

workers.

Mr. DAVIS OF ILLINOIS. Thank you very much.

I see that the chairman has returned.

[The prepared statement of Hon. Danny K. Davis follows:]

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Mr. KUCINICH [presiding]. I thought you looked pretty good

there, Chairman.

I want to thank Mr. Davis. Actually, I was kind of admiring him

sitting here, because I was listening to that rich, mellifluous voice,

taking lessons. Thank you very much, Mr. Davis.

Mr. Solomon, I am informed, needs to leave to keep another commitment, so you are discharged. The committee thanks you.

Mr. SOLOMON. Thank you.

Mr. KUCINICH. Thank you, sir.

Mr. Issa.

Mr. ISSA. I will do a couple more questions, and I, too, thank you,

Mr. Solomon. You were a big help to us looking at the problem in

a larger way.

I guess you get to be the only person, so you get all the questions

now. If the State of California has a 10 percent income tax, the

State of Florida has no income tax, isn’t that every bit as much one

State competing against another for a zero sum gain?

Mr. ROLNICK. In my earlier testimony I mentioned there is a

form of competition that, after all, is good competition, effective

competition. It is when cities and States compete to see who can

provide the highest quality public goods at the lowest cost. Then

people vote with their feet, so a high tax State like Minnesota provides, on average, pretty good public services. We have and we

have been known to have terrific educational system, high-quality

workers. You, as a citizen, can decide to move to Minnesota and

pay higher taxes or move to another State, like Florida, that has

lower taxes, and in turn the public services aren’t going to be as

good.

It is very difficult for State and local officials to decide how much

you should produce. The ability for people to choose where they

want to live is one way, the market, if you will, and that is the

good competition that can help State and local officials decide.

So the point of your question is a good one. There is a form of

competition. It is non-preferential. It is the type of goods that benefit all society, what economists call public goods non-rivalrous; that

is, education, safety, good air quality. These are all things we all

benefit from. That is a clear distinction between private goods. The

market works well for private goods. We don’t need government

interfering there.

Mr. ISSA. You know, I appreciate that, but let me hypothecate

another question, if you will.

Mr. ROLNICK. Sure.

Mr. ISSA. Case Western Reserve University has had a very controversial presidency come and go. These are million-dollar individuals. A million dollars. Now, Case happens to be private. We can

go to Kent State has a brand new almost three-quarters of a million dollar package president. They made a decision. A public entity made a decision to pay an awful lot of money to get an individual. They will pay a lot of money to get a whole wing of individuals. So when you talk about education, which I certainly think is

a core element of cities, counties, and even States, that is just part

of the package.

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In Cleveland, where the chairman and I are both from, we have

one of the finest metropolitan park systems. Again, these are part

of the competition.

We have minor league teams. We have major league teams. We

have indoor and outdoor centers that have everything from the

Beach Boys playing to more intimate activities when the basketball

team isn’t playing. Why are those not part of the same package of

local control and local decisionmaking that a city makes in harmony with its goal to have so many hotel rooms, to have so much

of this, that, and the next thing? Why is that any different?

Regardless of who gets the benefit—and I appreciate that some people would say, yes, but we are giving $400 million of value to

an already rich person who owns a professional sports team. But

if you take away who is the recipient, because, you know, for the

most part landlords are the rich, why is it that the decision to acquire these assets aren’t part of the local decision and the right of

the city to make?

Mr. ROLNICK. So let me answer in a broad way with the Minnesota example, and then I will get specifically to Cleveland.

Minnesota has one of the best economies in this country today.

It has attracted Fortune 500 companies. I think we are the No. 1

per capita in Fortune 500 companies. We have a very high per capita income. We have some of the lowest unemployment rates for

many years in the country. It is a very efficient market. So a question, how did Minnesota become that way? Was it because of entertainment? Did they get there because they had the Minnesota

Twins and the Minnesota Vikings and the Timber Wolves? Or did

something else go on?

We did a study of Minnesota’s economy that went back to 1920.

In 1920, Minnesota’s economy was well below the national average.

The big difference was after World War II the State of Minnesota

started pouring money into education. We do a much better job

now of graduating our kids from high school.

Mr. ISSA. And I appreciate all of that.

Mr. ROLNICK. My point is the underlying cause of the growth was

education, high quality. That attracts on its own, without government interference, attracts the businesses.

Mr. ISSA. I appreciate your opinion, but it is your opinion. Your

conclusions are drawn by a cause and effect in a State that has

professional sports, that, in fact, has been involved in the same sort

of activities of competition to attract and keep those professional

sports teams, or corporations that might choose to move somewhere

else if they don’t get tax abatement and so on.

So, although anecdotally I will accept that your truism is probably a good one, my question was local rights, the right of the local

municipality, or State’s rights to make these decisions, right or

wrong. Under federalism we start off with the assumption that

States and their derivative entities have these rights unless we

preempt them, either in the Constitution or in statute specifically

needed by the Federal Government.

So, again, why should I take away an equal right in decisionmaking that the city of Cleveland thinks that maintaining the

league-winning Cleveland Indians is a good idea for a city that otherwise was written off as part of the Rust Belt with no hope decVerDate 11-MAY-2000 16:26 Sep 28, 2009 Jkt 000000 PO 00000 Frm 00082 Fmt 6633 Sfmt 6633 U:\DOCS\51756.TXT KATIE PsN: KATIE
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ades ago, in addition to having Case Western Reserve, Baldwin

Wallace, Cleveland State, and a host of other fine universities,

parks, symphonies, and so on, because I am a proud former Clevelander who accepts that Cleveland has all the best things in life

except weather and, in fact, also maintains these sports teams.

Why is that not a legitimate part of the decision of the State and

their derivative entities?

Mr. ROLNICK. Mr. Chair, the answer was partly in your question.

Go back to the history of the Constitution and the Commerce

Clause, what Madison and Hamilton had in mind. Under the Articles of Confederation, States——

Mr. ISSA. You had better be careful. They didn’t think of Federal

income tax.

Mr. ROLNICK. Well, they didn’t think of that, but States were

putting taxes, imports, restricting trade among the States. Both

Hamilton and Madison were pretty good economists. They realized

that to create a strong national economy we should not allow cities

and States to interfere with interstate commerce. We also in the

Constitution prohibit States, as you raised earlier, the right to

issue bills of credit, which are money.

I am going to argue that allowing cities and States to preferentially go after each other’s companies, whether it is sports teams,

automobile factories, is a zero sum game. By luring an automobile

company from Toledo to Detroit or vice-versa from a national perspective doesn’t create any new jobs. The private market will take

care of these companies.

Your original point with Cleveland, that is entertainment, that

is private market. If Cleveland has a good economy, it will attract

all kinds of entertainment. You don’t have to subsidize entertainment. You are assuming that if you didn’t subsidize that entertainment it wouldn’t be there. I am going to argue at a national level

if we don’t allow cities and States to subsidize private companies,

the private market will work just fine. They will figure out the best

location decisions.

What the public has to do, what government has to do, is public

goods. That is not entertainment. Entertainment is a private market system. It will work just fine. There is no market failure.

So I would argue, if you want to argue States’ rights, I would

argue this is very similar to prohibiting cities and States from

interfering with interstate commerce with taxes. It is very consistent with making sure we have a strong national government.

The European Union, it is interesting, one of the first things they

did is eliminated the subsidy wars that were going on between

their countries.

Mr. ISSA. I know, and the Russians then bought alternative

teams. But I guess that is free market at its finest.

One final question, which is off of the core subject but important

to me.

Mr. ROLNICK. Sure.

Mr. ISSA. If we were to take away public bonding, do you believe

that cities, in order to ensure that they had the facility, regardless

of who pays for it, should be able to continue using its eminent domain in order to ensure that there was a facility in a location

agreeable to the city? In other words, Jacobs Field, if it was 100

80

percent privately paid, would never have been built anywhere in

downtown without the right to condemn and take at a fair price

the land that was taken. What do you say to that?

Mr. ROLNICK. My view on eminent domain and the spirit of eminent domain, it is an abuse to use eminent domain to take from

one private company and give to another. Eminent domain was

strictly supposed to be used to build a public institution—a library,

a school, not a sports stadium. So I have a lot of trouble.

Mr. ISSA. Thank you, sir.

Thank you, Mr. Chairman.

Mr. KUCINICH. My good friend from California raises some very

serious public policy questions here that I would like to meet from

another perspective.

We have the issue of the public good, as distinguished from the

private benefit. This is a consistent and common theme in the

United States, and it has been going on for over a hundred years.

We have what is called public utilities—water systems, sewer

systems, light systems. We call airports public utilities. It is commonly understood that the public has certain things they can invest in in order to be able to assure a public benefit. If we accept

the argument that there is a public benefit to having a sports team,

why, then, using that logic, could not the public use its money to

buy a sports team which then the public would own, instead of the

public using its money to buy a stadium for the private owners

while the owners still own the team? Do you see where I am going

with this?

Mr. ROLNICK. Yes.

Mr. KUCINICH. Would you comment on that?

Mr. ROLNICK. I have heard the argument before, Mr. Chairman,

in my mind, two bad choices: either you subsidize the stadium or

you buy the team, itself. In either way I think it is not a very efficient use of public money. I will admit there is some publicness to

professional sports teams. We can all root for our team without

ever having to go to a game, to not have to pay a dime. When

economists have tried to measure the value of that publicness, it

falls far short of owning a team or buying a stadium.

In Minneapolis, at the time that we laid out $400 million, when

Hennepin County, through a sales tax, laid out $400 million for

that stadium, you can argue maybe they could have bought the

team, whatever. At the same time, they were closing libraries in

the city of Minneapolis, reducing the hours of the ones that were

left open. So recognize, as economists will say, there are opportunity costs here. Lest we think that business you can make a lot

of money at——

Mr. KUCINICH. Right. It is conceivable.

Mr. ROLNICK. That is a question.

Mr. KUCINICH. Is it conceivable that if you had a team—now, we

are looking at figures that show that the value of teams go up

when the public throws in an investment of a stadium.

Mr. ROLNICK. Right. And you would like——

Mr. KUCINICH. Some of those values go up tremendously. So is

it conceivable that if a community owns a team and the value of

the team goes up and maybe they get into the playoffs and win a

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championship and go to the World Series, that you could actually

use those revenues to reduce taxes in a community?

Mr. ROLNICK. Mr. Chairman, they like to say in Minnesota we

are all above average. All teams can’t be above average, and there

are going to be some losing teams.

Mr. KUCINICH. Right.

Mr. ROLNICK. Now is a State then going to be in a position to

have to purchase a high-price pitcher so we can have a winning

team? I would rather have my public officials spending time concentrating on public goods like early childhood development.

Mr. KUCINICH. I am not disagreeing with that, but I think that

a case could be made. When is the last time a major league chain

was actually worth less money in succeeding years, that it dropped

in value? When was the last time that it lost significant amounts

of money? I am talking about two books here.

So the point I am making, because in Cleveland, for example,

having major league sports is a big deal. It is. When we had the

debate over Gateway years ago, I actually opposed building it, and

did so publicly because I felt that the taxpayers—well, some of the

same arguments that you are raising today. We had Municipal Stadium, where the Indians and the Browns played.

What I proposed is if we wanted to assure that the teams stay

in town—and that is really the issue here. The issue is always

whether the teams are going to stay in the city. Why do people

build stadiums? Why is the public interested in investing? They

want to make sure they don’t lose the team.

So if the question is keeping the team, then it seems to me, if

that is the public good we are talking about, then I don’t see anything wrong—and I know my friend here from California might

have a different opinion——

Mr. ISSA. From Cleveland in California.

Mr. KUCINICH. From Cleveland in California—and I want to take

issue with your indirect criticism of our winters.

Mr. ISSA. I was talking about the summers.

Mr. KUCINICH. Oh, the summers. We are one of the few places

in America which has a ski resort a few miles from a steel mill.

The point being that I don’t think that public ownership of these

franchises should be de-linked from a public good for the community; that it might be harmonious.

Now, when we get to the actual ranking what the priorities are

in a community—to repair your bridges, are your schools falling

apart, what kind of condition are your roads in. Here again, just

before you came in what I suggested, if a city actually invested in

a team and owned part of a team, they could take the profits from

that and pour it into reducing taxes or providing services.

I know, again, the example is of private enterprise to say wait

a minute, you are getting into private enterprise. But some people

say that, too, of water systems, sewer systems, electric systems. I

am just injecting that as another dimension in this which seldom

gets discussed and it is one of the reasons, motivating factors that

I have brought that forward.

Mr. Issa, do you have any other questions? We will go to the next

panel.

Mr. ISSA. No. I think it has been an excellent panel. Thank you.

82

Mr. KUCINICH. All right. I will just ask one more question.

The Governor of Minnesota had reportedly vetoed at least one increase in the gasoline tax which funds bridges and road repair

prior to the I–35 West bridge collapse. He signed a bill permitting

the increase in the Hennepin County sales tax to fund a new stadium for the Twins during that same period. So there is a political

process here that needs to be reviewed.

Should it give Congress comfort that elected officials will, on

their own, make the tough choices to prioritize critical public infrastructure over give-aways to private concerns? Again, that is the

dynamic tension we are looking at here, to go back to my friend

from California. I mean, we have to freely understand the pressures that are on communities who don’t want to lose a team. But

what about it?

Mr. ROLNICK. Mr. Chair, it goes back to my original point. I

think I understand your attempt to a better solution than simply

subsidizing stadium, having the city or the State buy the team, but

I think a much more effective solution is to have Congress end the

bidding war. These teams would not be footloose and fancy free.

They know where their markets are. They are making money. They

wouldn’t be moving around as much as they threaten to do if we

no longer allowed cities and States to subsidize these teams.

Mr. KUCINICH. One final question, and then I will go to Mr. Issa

again.

Mr. ROLNICK. Sure.

Mr. KUCINICH. In our previous hearing we heard the argument

made that when one municipality lures a specific business away

from another, there could be a distributional benefit, even if there

is no net national benefit. That is, a poor community could benefit

from hosting a business that would otherwise have been located in

a more affluent community.

Can you comment on this distributional benefit to allowing

States and municipalities to compete with one another for specific

businesses?

Mr. ROLNICK. Sure.

Mr. KUCINICH. And does this distributional benefit justify the

Federal tax expenditure?

You can answer that question, and then I want to go to Mr. Issa

for a final question.

Mr. ROLNICK. There is no evidence, Mr. Chair, that the distributional benefits go that way. If anything, the richer communities are

the ones that outbid the poorer communities. My home town of Detroit is an example of where you have two new stadiums, three casinos, attempts to revitalize a community and not look at the fundamental problem, which is educating their kids.

These are distractions. The notion that there is going to be distributional benefits for low-income families in these bidding wars

is, I think, unsupported by any evidence that I have seen. If anything, these subsidies end up in the hands of very wealthy and successful business people.

Mr. KUCINICH. Thank you, Mr. Rolnick.

Mr. Issa.

Mr. ISSA. There is no argument that we talk about more here in

Washington than redistribution of wealth. Nobody on the dias here

83

is going to say please give billionaires more money. I do think it

is interesting that if Cleveland would just buy the Indians, then it

could, of course, have a cap of $125,000 a year for the salaries of

those individuals as city workers, and I know that would make it

a much more affordable team. They wouldn’t be in the playoffs. But

that is a separate question.

I will ask it in two phases. Are you aware that Minnesota could

have and perhaps should have rebuilt its own bridge that it did deferred maintenance on and let fall down when it had a $2.1 billion

surplus? And the reason I ask that question is I appreciate your

zero sum game question, but, see, as a former Clevelander, I am

now a Californian. We contribute about one-eighth of the cost of

the Federal Government, so when the Federal Government handed

out a freebie quickly to Minnesota, what we really did was we gave

away money that we don’t get back in California. California gets

back less than $0.76 on every $1 it sends. So in the co-question of

zero sum game and redistribution, essentially wouldn’t it be fair for

Minnesota to take care of all of Minnesota’s responsibilities and we

in Washington to quit handing out quickie bills voted overnight in

lump sums against a bridge that doesn’t even have the first quote

on it?

In fact, since your opening testimony talked about I–35 W, why is it, with a $2.1 billion surplus, we had to vote at all? Why wasn’t

Minnesota assuring the people of Minnesota that it would rebuild

their bridge that they deferred maintenance on?

Mr. ROLNICK. Let me just say Minnesota, like California, receives

less in public funds than it——

Mr. ISSA. But not on that day.

Mr. ROLNICK. Not on that day. I really can’t comment on the details of the decisions on the bridges. They are complicated issues,

and it is being debated today. I think it is important for government to take a lesson from what went wrong. I think nationwide

we are way under-investing in infrastructure. I don’t think Minnesota is the only case in point. I think the argument I am trying

to make today, in a major distraction, not just in terms of money

but in time, it is trying to lure each other’s companies with these

tax incentives, and I would strongly argue that if we ended this

economic bidding war you would find State and local governments

doing a much better job of meeting the direct public needs that we

expect.

Mr. ISSA. The reason I ask this question is, you know, I am in

southern California where we pay road taxes and we don’t get it

back to build our roads, even though we are growing, so we end

up paying it with local money. Northern California and other

places like it, they get huge, huge public works projects to build

Metro. In San Francisco it is called BART. And 10.2 percent of the

bonds issued—and this is, of course, nationally, but we will just assume for a moment that it was California—goes to transit. The

debt for transit is 10 percent of the debt, while the debt for stadiums apparently is 0.4 percent.

On a scale, realizing you would like one to be zero, but, you

know, 25 times as much spent on public transportation, isn’t that,

in fact, a reasonable—if someone told you we spent 25 times as

much on transit systems as we send on stadiums, wouldn’t you say,

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Well, that is pretty good, before you said it should be zero, it

should be infinite times? Wouldn’t you say 25 times as much is

pretty good?

Mr. ROLNICK. So if you are in business, Mr. Chair, if you are in

business, the way you ask the question is where should my next

dollars be invested, and you are always looking for the low-hanging

fruit, the highest return. So I urge you, instead of looking at that

ratio, to say what is the return on that public investment.

Now, as I mentioned earlier in my testimony, we did an exercise

like that with——

Mr. ISSA. Recognizing that transit is one of the lowest returns,

when we build transit what we have to do is keep subsidizing it

forever. It never breaks even and never pays. The Metro system

here has $3 in subsidies for every $1 paid by the people that ride

it.

Mr. ROLNICK. I know there have been some fairly sophisticated

analyses looking at how it reduces pollution, congestion, etc. I am

not defending the money going into transportation, necessarily; I

am just saying that the way you should make these decisions is to

look at the next dollar. Where is the benefits relative to the cost

the highest. When we did that and we looked at high-quality early

childhood education starting prenatal to five, we found extraordinary returns.

Mr. ISSA. I am sure you did. Did you also look at——

Mr. ROLNICK. So I will put that up against transportation and

the stadium.

Mr. ISSA. Did you also look at physical fitness, health and welfare, aspirations of young people, everything else that goes when

they go to one professional baseball game and they say, I want to

be like that. I want to join my Pop Warner and I am going to do

this. Did you apply those same metrics to that?

Mr. ROLNICK. Yes, we did. We actually did, and we do know that

baseball is going to exist in this country whether we subsidize it

or not.

It was interesting, when the Minnesota hockey team left Minneapolis for Dallas a number of years ago, what happened with

those kids who loved hockey? They started to go to the high school

games, they started to go to the college games. It isn’t that sports

entertainment disappears; they started to go to some of the minor

league games. So recognize this entertainment is going to exist, but

if you don’t educate those kids starting at prenatal to five and they

start school behind, the market doesn’t fix that. Those are the kids

that end up behind. Those are the kids that cost society a huge

amount of money.

Entertainment will be there. I will guarantee you if we end the

bidding war between cities and States, you will still see virtually

every one of these teams in the major cities as they are today, and

your kids will be able to root for them.

Mr. ISSA. Thank you.

Thank you, Mr. Chairman.

Mr. KUCINICH. I thank Mr. Issa for his questions.

I want to thank Mr. Rolnick for his participation and his patience with this process of being interrupted by votes.

Mr. ROLNICK. Thank you.

85

Mr. KUCINICH. You are much appreciated. This committee wants

to thank you.

We are going to move on to our next panel and thank them for

waiting, as well.

On our second panel, the subcommittee is going to hear from

Professor Judith Grant Long, who is assistant professor of urban

planning at the Harvard University Graduate School of Design.

Professor Long’s research interests focus on physical planning, with

particular attention to the growing role of sports, tourism, and cultural infrastructure in cities. Her recent publications include, Full

Count: The Real Cost of Public Funding for major league Sports

Facilities; Facility Finance: Measurement Trends and Analyses;

Transforming Federal Property Management: The Case for Public/

Private Partnerships. She is completing a book currently entitled

City Sports: Stadiums and Arenas as Urban Development Catalysts.

A certified professional planner, Professor Long has practiced extensively at the local level of government in the Toronto area, managing innovative strategies for downtown development and historic

preservation. Her honors include grants and awards from the U.S.

Department of Housing and Urban Development, the IBM Center

for the Business of Government, the Canada Mortgage and Housing Corp., the Ontario Professional Planners Institute. She is a recipient of the Gerald M. McHugh Medal awarded by the GSD.

Professor Long served as assistant professor of urban planning at

Rutgers from 2002 to 2005, a design critic at GSD during 2005 to

2006. She received her B.A. in economics from Huron College at

the University of Western Ontario, Canada; her BAA in urban and

regional planning from Ryerson Polytechnic University in Canada,

her MDES from GSD, and her Ph.D. in urban planning from Harvard Graduate School of Arts and Sciences. Welcome.

Professor David Hale is the director of Aging Infrastructure Systems Center of Excellence, at the University of Alabama. The

AISCE works to mitigate and reverse the effects of aging on the

Nation’s public and private sector infrastructure by using systematic cross-industry application of engineered processes and techniques. Dr. Hale’s research has resulted in over 50 scholarly and

infrastructure systems professional publications in journals and

conference proceedings.

Dr. Hale’s research has been funded by the National Science

Foundation, the U.S. Department of Commerce, the U.S. Department of Transportation, U.S. Army Corps of Engineers, Accenture,

Alabama Department of Transportation, Computer Sciences Corp.,

KPMG Peat Marwick Research Foundation, Proctor and Gamble,

Sterling Software, Texas Instruments, and University Transportation Centers of Alabama. He has consulted for a number of the

largest corporations in America.

Dr. Hale currently serves on the State of Alabama’s Infrastructure Commission and the Governor’s Black Belt Task Force and the

State’s Information Technology Workforce Development Resource

Center. He also directs the Aging Infrastructure Systems Center of

Excellence at the University of Alabama.

Ms. Bettina Damiani is the project director of Good Jobs New

York, which promotes policies which hold government officials and

86

corporations accountable to the taxpayers of New York City. At the

Good Jobs New York, Ms. Damiani has worked to bring more

transparency and public participation to the allocation of subsidies

to large economic development projects, including the rebuilding of

the World Trade Center site and the new Yankees Stadium in

South Bronx. She is a founder of the Liberty Bond Housing Coalition, which advocated for the use of post-September 11th financing

to create affordable housing for middle- and low-income New Yorkers.

Ms. Damiani has a BA in communications and peace studies

from Manhattan College and has a master’s of urban affairs from

Hunter College. She is a recipient of the 2006–2007 Revson Fellowship at Columbia University.

Welcome.

Dr. Steven Maguire is currently a Specialist in Public Financing

in the Government and Finance Division of CRS. He specialized in

the economics of taxation, particularly Federal taxation and State

and local public finance.

Recent reports have addressed State use of tax-exempt private

activity bonds, tax credit bonds, the alternative minimum tax deductibility of State and local taxes, internet taxes, family tax

issues, estate taxes, and estate business taxation. In addition to his

work at CRS, his Ph.D. dissertation examined the public subsidy

of professional sports stadiums.

He holds a BA in economics from the University of Tennessee

and a Ph.D. in economics from the Andrew Young School at Georgia State University. He is a member of the National Tax Association and American Economic Association.

Members of the panel, it is the policy of the Committee on Oversight and Government Reform to swear in all witnesses before they

testify.

[Witnesses sworn.]

Mr. KUCINICH. Let the record show that the witnesses, each of

them has answered in the affirmative.

As with panel one, I will ask the witnesses to give an oral summary of his or her testimony, to keep this summary under 5 minutes in duration. Bear in mind that your complete written statement will be included in the written record.

I would ask Professor Long to begin. Thank you very much.

STATEMENTS OF JUDITH GRANT LONG, ASSISTANT PROFESSOR OF URBAN PLANNING, GRADUATE SCHOOL OF DESIGN,

HARVARD UNIVERSITY; DAVID P. HALE, DIRECTOR, AGING

INFRASTRUCTURE SYSTEMS CENTER OF EXCELLENCE, UNIVERSITY OF ALABAMA; BETTINA DAMIANI, DIRECTOR, GOOD

JOBS NEW YORK; AND STEVEN MAGUIRE, SPECIALIST IN

PUBLIC FINANCE, CONGRESSIONAL RESEARCH SERVICE

STATEMENT OF JUDITH GRANT LONG

Ms. LONG. Thank you, Mr. Chairman, Ranking Member Issa, and

members of the subcommittee for the opportunity to speak this

afternoon.

I am a professor at the Harvard University Graduate School of

Design. I am an urban planner and an economist. I, too, wrote my

87

dissertation on public subsidies for sports facilities, so I look forward to comparing notes with Professor Maguire.

My main area of expertise is the financing and development of

sports, convention, and tourism facilities.

The question before the committee today is whether or not public

subsidies for professional sports facilities divert funds and attention away from critical public infrastructure. My testimony will

focus on three aspects of this issue: first, how much public money

has been spent subsidizing major league sports facilities; second,

what portion of this public funding has made use of tax-exempt financing; and, third, are public subsidies for major league sports facilities indeed diverting funds from the repair and maintenance of

critical public infrastructure.

Turning to the first question, how much public money has been

spent and continues to be spent to subsidize new major league

sports facilities, this question is important because the ongoing debate about the appropriateness of these subsidies depends critically

on our ability to accurately measure the nature and magnitude of

these underlying costs. Starting with cost figures provided by the

sports industry, public funding for the 82 facilities opened between

1990 and 2006 totals approximately $12 billion. This estimate is

based on an average facility price tag of $253 million, an average

public subsidy of $144 million, translating to an average public

share of 57 percent.

My research, which is now shown for the elucidation of the audience who don’t have the report in front of you, is summarized in

a table on the side screens. My research shows that these figures

are, in fact, the tip of the iceberg. I argue that governments pay

far more to participate in the development of major league sports

facilities than is commonly understood, due to the routine and ongoing omission of public subsidies for land, infrastructure, and, as

well, the ongoing costs of operations, capital improvements, municipal services, and foregone property tax revenues.

Adjusting for these omissions, my full count estimate of total

public funding for these same 82 facilities is $18.5 billion, representing a 55 percent increase over commonly reported industry

figures, or $6.5 billion in uncounted costs These figures are based

on an average of $80 million in uncounted cost for each individual

facility, increasing the average public subsidy to $225 million and

the average public share of total costs increasing from 57 percent

to 80 percent.

My adjusted public cost data can also be applied to broader time

periods. Over the period from 1950 to 2006, I estimate that the

public has spent just over $27 billion subsidizing capital costs such

as building, land, and infrastructure for 167 major league sports facilities built since 1950. That is an average of $155 million per facility. Now, if we add the $6.5 billion in uncounted ongoing costs

and foregone property tax revenues for the period of 1990 to 2006,

the total public cost increases to $31.5 billion. Add the seven new

facilities scheduled to open in the period of 2007 to 2010, and the

total public cost increases by another $1.5 billion to just over $33

billion, and so on.

As to the second question, what portion of the $18.5 billion in

public subsidies for sports facilities delivered between 1990 and

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2006 used tax-exempt financing, this is an important question because of the ongoing debate about the appropriateness of using taxexempt bonds to finance sports facilities, since they offer a discounted cost of capital to private individuals paid through a reduction in Federal tax revenues.

Interpreting my preliminary aggregate data very conservatively,

I came up with an estimate, for the purposes of today’s hearing,

which was approximately $10 billion of tax-exempt bonds based on

this initial figure from 1990 to 2006 of $18.5 billion. But then when

I arrived today, I was happy to see that Dr. Maguire actually had

up-to-date data that summarized the total amount of funds used

from 1993 to 2006, and, while the total figure wasn’t provided, my

quick math estimates at about $16 billion. So, in fact, it is higher

than the $10 million that I estimated conservatively and represents

somewhere between 80 to 90 percent, depending on how one measures these figures, of the total amount of subsidies delivered.

Clearly it is an important, if not the major, instrument of subsidy

delivery in the context of major league sports facilities and the public funding for them. What is less clear is whether the total amount

of public funding would be lower for sports facilities and, in fact,

how much lower would it be if the use of tax-exempt bonds to finance sports facilities was prohibited.

On a smaller scale but still worth noting is the dollar value cost

associated with the use of tax-exempt financing whereby taxpayers

are paying a share of reduced interest costs through reduced Federal tax revenues. Again, based on my conservative estimates, I

was using a participation rate of about 80 percent of the 62 facilities out of the 82 and came up with an average debt issue of $150

million.

Then with the 2 percentage point spread between the tax-exempt

and market interest rates, the total resulting loss to the U.S.

Treasury on an annual basis would be approximately $2 million

per facility per year, and over a period of 20 years the total lost

Federal revenues would be close to $2 billion. Again, making use

of Dr. Maguire’s data, it is clear that this amount would be somewhat higher.

As an example, to finance the Seattle Mariners’ new ballpark in

1997, King County issued $310 million in tax-exempt bonds carrying an interest rate of 5.9 percent at a time when equally rated

taxable bonds issued by King County carried an interest rate of 8

percent. The difference in tax rates amounted to $6 million in lost

Federal revenues.

Turning to the third question, could this $18.5 billion spent between 1990 and 2006 have been better spent by investing in critical

public infrastructure, this question of opportunity cost is particularly important given the recent and solemn reminder in Minneapolis where a bridge collapsed killing 13 people 1 day before

ground was to be broken on a new major league ballpark financed

with close to $400 million in public funds.

A quick look at the numbers reveals that the money spent by the

public sector on major league sports facilities is relative pocket

change when compared to the money needed to maintain and upgrade critical infrastructure. According to the University of Alabama’s Aging Infrastructure Systems Center of Excellence, it takes

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approximately $100 billion annually to maintain the Nation’s infrastructure at its current level of service, and over the next 5 years

an estimated $1.6 trillion is required to bring the Nation’s infrastructure up to acceptable standards.

Viewed nationally, if public funding for sports facilities could, indeed, be redirected, the magnitude of spending comes nowhere near

to solving the infrastructure problem. Even if the entire $18.5 billion spent on sports facilities by the public sector over the past 16

years could be retroactively applied to infrastructure, only 3

months of current operating costs could be paid.

In annual terms, the picture is bleaker, still, since annual public spending on major league sports facilities is between $1 billion to

$2 billion per year, or about $10 million per facility. Moreover,

these figures assume that the rate of new construction will continue, whereas by 2010 over 90 percent of the major league facilities’ stock will have been replaced and a lull in construction activity is anticipated.

Viewed locally, however, the opportunity cost of public funding for sports facilities is more tangible. If the $1 billion to $2 billion

were diverted to the 50-plus U.S. cities that host major league

sports facilities, the impact is sizable. Recapturing $10 million per

facility per year—and many of these cities have two—would go a

long way toward ensuring the effective management, maintenance,

and upgrading of local public infrastructure.

It is, of course, also helpful to consider diversions other than

transportation infrastructure, since the mis-match in the relative

scale of these two public spending issues may, quite mistakenly,

infer that public funding for sports facilities is a token amount and

therefore insignificant. Nationally, $1 billion per year could support

a host of worthy public programs. To take one example, $100 million is the amount the Centers for Disease Control and Prevention

plan to distribute to help States boost their smallpox vaccination

programs.

Locally, these moneys could be better spent perhaps by supporting schools, health care services, and job creation programs. $10

million could support the creation of over 200 local jobs, assuming

a cost of $50,000 per job.

So it appears that there are many ways this money could be better spent, depending on one’s perspective, yet under existing regulations it is unreasonable to expect that State and local decisionmakers will be able to fend off the considerable political pressure

exerted by private individuals to gain access to the benefits of taxexempt financing.

Diverting public funds away from sports facilities will require removing this authority from State and local political arena through

a prohibition of the use of tax-exempt funds for sports facilities.

There is very little evidence that there have been $18.5 billion in

public benefits generated since 1990 to compensate for the $18.5

billion in public costs that have been expended.

Mr. ISSA [presiding]. Thank you, Professor. The rest of your

statement can be put in the record. You are at twice your time.

Ms. LONG. I apologize. I was just about done.

Mr. ISSA. No problem.

[The prepared statement of Ms. Long follows:]

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Mr. ISSA. Professor Hale.

And your entire statement, as the chairman said, will be placed

in the record, so you will be as though you said it all, so it is what

you say over and above that, in fact, is a benefit to you.

Please.

STATEMENT OF DAVID P. HALE

Mr. HALE. Thank you for the opportunity to testify concerning

priority of resource allocation among the Nation’s aging infrastructure. This statement is meant as an overview of the issues that

dominate this priority.

My name is David Hale. As was previously mentioned, I am director of the Aging Infrastructure Systems Center of Excellence.

The Center is a multi-disciplinary research and technology transfer

center whose mission is to assist the public and private sector managing and mitigating the effects of aging on the Nation’s infrastructure. The Center takes an inclusive definition of infrastructure systems that includes both man-made and natural infrastructure components. Collectively, these systems provide the foundation for economic development, safety, security, and quality of life for the public.

The Center is a collaboration among government agencies, commercial organizations, and universities whose core set of expertise

ranges from engineering to business, social, and physical sciences.

Our Center’s focus is work on an integrated body of knowledge that

crosses fields of science, particularly with emphasis on physical

structure monitoring and improvement based on risk-based analytic procedures.

This broad perspective leads us to the following. Today the consequences of breakdowns in our aging infrastructure is staggering.

Policy-makers of physical infrastructure systems are faced with

daunting challenges dealing with prioritization. As the chairman

stated, in 2005 the American Society of Civil Engineers placed a report card in the public hands that indicated that all of the Nation’s

infrastructure had deferred maintenance, which corresponded to

low performance marks across the board. Our roads, schools, dams,

and water systems are all graded at D or worse. Collectively, $1.6

trillion is needed over the next 5 years to bring the Nation’s infrastructure into good condition.

Despite staggering consequences that continue to occur on an

ever-increasing scale, financial resources needed for resilient upgrade of the Nation’s infrastructure has been slow to materialize.

The effects of under-funding is evidenced throughout our society.

Recently we have been witness to catastrophic infrastructure failures, as examples are the I–35 bridge collapse in Minnesota, levee

failures in New Orleans, contamination of our food supplies, and

electrical grid disruptions.

From the chairman’s home area in Ohio, at least 35 percent of

the urban roads are considered congested, which causes excess fuel

usage and lost time. The average Canton area commuter spends

$219 a year in excess fuel usage and lost time.

Likewise, Cincinnati commuters have an average cost of $687. In

California, 60 percent of the urban roads are considered congested,

which accounts for the average L.A. commuter spending over

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$1,600 a year. Moreover, 71 percent of the major roads in California are considered poor or mediocre in terms of condition. This

level of upkeep costs the average Californian motorist $544 per

year, which amounts to $12 billion for the State as a whole.

I serve on the State of Alabama Infrastructure Commission. In

that position I am confronted with the tradeoffs between public

safety, economic development, ecology, and quality of life. I would

like to spend some specific time here talking about one example.

The engineering design life of most bridges built in Alabama is

considered to be 50 years. Currently, Alabama has 1,489 bridges

that were built 50 years or more ago. In the next 15 years, another

1,495 bridges will reach 50 years of age. That is a 100 percent increase that will bring the total number of bridges in the inventory

of bridges within Alabama from 30 percent to 60 percent in the

over 50 year category. Current funding levels for bridge repair and replacement are $65 million annually. This creates a backlog of almost $2 billion today

in current dollars, and this backlog will grow to $4.5 billion over

the next 20 years.

With such high demand for public sector resources, the prudent

question continues to be whether public funding for sports stadiums squeezes out needed funding for public works projects that are

critical to the Nation’s safety and competitiveness.

The issues I am focused on are accountability, transparency, and

responsibility for decisionmaking processes. The complex linkages

between allocation decisions and infrastructure performance is difficult to trace. The general public has little objective evidence to

hold its officials accountable. Many performance indicators are not

mandatory, and many of those indicators that are mandatory are

not uniformly defined, calculated, or disseminated.

Thank you.

[The prepared statement of Mr. Hale follows:]

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Mr. KUCINICH [presiding]. Thank you very much, Professor Hale.

Ms. Damiani.

STATEMENT OF BETTINA DAMIANI

Ms. DAMIANI. Thank you. My name is Bettina Damiani. I director of Good Jobs New York. We are a joint project of the Fiscal Policy Institute based in New York and Good Jobs First based in

Washington, DC. Good Jobs First is a national resource center promoting accountability in economic development projects.

For over 2 years, we have been keeping track of the massive economic development subsidies going into two of New York’s stadiums, Yankee Stadium and what is currently Shea Stadium, but it

will be called City Field when it is all said and done. Together,

these two projects are going to be costing taxpayers $1.2 billion. We

have been urging more transparency and accountability in these

projects, and the bulk of our efforts have been around the Yankee

Stadium project.

That is not to say that the Mets are not benefiting from taxpayer

dollars. They certainly are. But the reality is, a process by which

the New York Yankees are building their new stadium is an affront

to the democratic process, frankly. They are building their new stadium across the street from their current one on what was 22 acres

of heavily used park land in the South Bronx.

Now, the way they got this park land was quite remarkable.

There was not one public hearing. There was not one public notice.

The process took 9 days. I don’t know if you all understand the

process in Albany, but they don’t move quickly upstate when it

comes to legislature, but they managed to take away these parks

in 9 days from one of the poorest congressional districts in the

country.

This process took not into one ounce consideration for the health,

the educational, or the employment needs of the people in the immediate community, much less the economic benefits that it would

bring to New York City more broadly.

The stadium is going to cost about $1.3 billion. As I mentioned,

it is directly across the street from where it currently is located,

so it kind of begs the question of the new economic development

that it might be bringing. It is a smaller stadium. Many of the jobs

associated with these stadiums are part time and low wage. Granted, there are going to be construction jobs along with this project,

and they are certainly good jobs in New York. There are good union

jobs there. But what is missing is the issue of making sure that

those jobs will benefit people in New York City and in the Bronx.

There is no guarantee for local residents to be hired. There is no

job training initiative as a part of this. The New York Yankees

claim those are community benefits they say agreement. It is a

mitigation agreement. But nobody is watching that store. The only

notice that has come out from this project about local hiring has

come directly from the Yankees, so we are quite curious where our

local elected officials are and who is holding the Yankees accountable. We need to make sure that local residents are getting access

to job training and actual jobs.

How did this happen? The Yankees seem to have a variety of maneuvers, and one of them was really an all-hands-on-deck philosoVerDate 11-MAY-2000 16:26 Sep 28, 2009 Jkt 000000 PO 00000 Frm 00113 Fmt 6633 Sfmt 6633 U:\DOCS\51756.TXT KATIE PsN: KATIE
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phy. They managed to—and quite brilliantly so, depending on how

you look at it—hire former public officials and former officials in

a variety of agencies in which they needed approvals from, ranging

from for subsidies, for land use, and for other infrastructure needs.

I should mention that the president of the New York Yankees is

Randy Levine. He was formerly deputy mayor for economic development under Rudy Guiliani, so there is quite an insight. That is

just sort of a large example of how this process really started to

move along.

The fix was really in once they took the parks, so in June 2005

there was a memorandum of understanding between the city and

the Yankees that everything that happened would, indeed, happen,

including subsidies and land use and making sure that the process

went along as efficiently as possible. Our elected officials have said

that this is a privately funded project. There is really nothing further from the truth. It is going to cost taxpayers about $795 million.

Just yesterday there was an approval for parking garages associated with this project. There are going to be about 9,000 parking

spaces in a community that has one of the lowest car ownership

rates in the city and some of the highest asthma rates in the city,

so it is counter as to where we should be putting our money. It

should be going into our subways. Those are our highways in New

York. That is how we get around. We get to our baseball games,

we get to our work, we get to our leisure activities through our subways.

There is a great issue of whether there is enough money going

into our subways. The Comptroller recently put out a report saying

it is going to need an extra $673 million just to bring up some basic

issues in our subways, making sure we have ventilation fans in

case there are fires or explosions, bring the lighting up to code. And

outdated signal systems make the system unreliable, and an unreliable New York City subway system doesn’t do much for our economy.

Our water system, we have tunnels dating back from 1917 and

1936 that need to be greatly improved. We love our water in New

York. We push bottled water aside when we can. We think tap

water is really the way to go and we want to keep it that way. It

is going to cost money.

Our bridges, we have about 800 bridges that are questionably

structured in New York. The Brooklyn Bridge—everybody knows

the Brooklyn Bridge—is one of the biggest concerns in our city, and

there are about 10 other bridges that actually lead to the Brooklyn

Bridge that are under consideration as structurally deficient, as

well.

So there is a variety of infrastructure issues in the city with the

population and growing demands of New York. We expect another

one million people in the next 20 years, and we have to address

those needs over the needs of the New York Yankees, remembering

that they are a private team and they deserve not more than what

our basic infrastructure deserves.

Thank you.

[The prepared statement of Ms. Damiani follows:]

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Mr. KUCINICH. Thank you very much for your testimony.

Dr. Maguire.

STATEMENT OF STEVEN MAGUIRE

Mr. MAGUIRE. Good afternoon. My name is Steven Maguire, and

I am a Specialist in Public Finance at the Congressional Research

Service. I would like to thank Chairman Kucinich, Ranking Minority Member Issa, and the committee for allowing me the opportunity to testify before you today.

The Joint Committee on Taxation has recently estimated that

the Federal exclusion of interest on public purpose State and local

government bonds will generate a tax expenditure of $156 billion

over the next five fiscal years, 2007 to 2011. This tax expenditure

includes the expenditures arising from tax-exempt bonds issued for

public infrastructure, in many cases sports stadiums and arenas.

Today I will present data from the Bond Buyer Yearbook from

various years. After reviewing these data, two things arise. First,

annual issuance of private activity bonds has declined as a share

of total issuance since 1987. Second, viewed from a national perspective, bonds used for stadiums do not seem to substitute for

transportation infrastructure bonds.

As it is late in the day and most of what I was going to say has

been said, I will be brief and go right to the data.

The Bond Buyer reports annual issuance by bond characteristics

and by function. The bond characteristic at issue here is the treatment of bond interest for purposes of calculating the alternative

minimum tax. A&T bonds are private activity bonds whose interest

must be added back when calculating A&T liability.

Figure two in my written testimony talks total bond issuance

and A&T bonds as a subset of that total. The secondary axis on the

right-hand side in figure two reports the A&T share of the total

and plots an estimated trend line. The trend line clearly shows decline in the annual issuance of private activity bonds’ share of total

volume from 1987 to 2006. From this, one could conclude that the

volume cap may constrain the use of qualified private activity

bonds.

Data on transportation and sports facility bonds: the Bond Buyer

also reports the type of activity financed by bonds. Transportation

bonds as defined by the Bond Buyer Yearbook includes issues sold

for airports, seaports and marine terminals, roads, highways, toll

roads and bridges, tunnels, parking facilities, mass transit systems,

and miscellaneous transportation projects. Sports facility bonds are

included in the broader category, public facilities. Notably, the largest public facility issue in 2006 reported by the Bond Buyer Yearbook was the New York Convention Center Development Corp.’s

$943 million sale on August 16, 2006, for Yankee Stadium.

Generally, bonds for transportation infrastructure appear to consume roughly 10 percent of total annual bond volume, and bonds

for stadiums approximately 0.4 percent. Figure three in my written

testimony charts the annual volume of bonds for transportation

projects and stadium as a percentage of total annual bond volume

for the 1987 to 2006 time period. Bonds for transportation infrastructure seemed to be trending upward, as with stadiums. The

trend for stadiums, however, is not as robust. In fact, the bonds for

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Yankee Stadium accounted for one-fourth of the total for stadiums

from 2006, likely generated a one-time spike in the stadium percentage, in turn generating the upward slope.

Conclusions: the data as presented here do not support the notion that bonds used for stadia could have been used for transportation projects. If so, one would have expected the share of transportation bonds to increase more slowly than that for stadiums.

That is not the case. Nevertheless, the national data may mask

State-specific or local tradeoffs between bond funding for stadiums

and transportation infrastructure.

Thank you, and I look forward to any questions you may have.

[The prepared statement of Mr. Maguire follows:]

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Mr. KUCINICH. Thanks again to all members of the panel.

Professor Long, I would like to begin questioning with you. You

are a trained urban planner. Does it make sense for urban plans

to feature a professional sports stadium?

Ms. LONG. Brief elucidation. Are you asking whether or not it

makes sense for cities to use stadiums and arenas as an urban development catalyst?

Mr. KUCINICH. Yes, and also are there other publicly financed facilities that make for better cities?

Ms. LONG. Good question, broad question. In terms of studies

that have looked at whether or not stadiums and arenas are effective catalysts in either an urban development sense or an economic

development sense—and by economic development I mean, and this

is the term used in most of the studies and in previous testimony,

economic development is jobs and taxes, urban development tends

to focus on the physical, i.e., new development, reduction in vacancy rate. Then there is a set of intangible benefits.

Mr. KUCINICH. So does it make economic sense then?

Ms. LONG. The economic sense, in terms of the data on the economy, you have heard previous testimony on this subject matter,

and the overwhelming consensus is that there are negligible new

benefits from an economic perspective. From an urban development

perspective, there are some current investigations into this question, and the reason it is a very difficult question to answer at this

particular point in time is that the majority of the new stadiums

of this 82 built in the last 15 years, the majority of them came online between 1996 and 2000. If they are intended to anchor new development in an under-developed area of a city, it typically takes

a time horizon of 10 to 15 years to see anything close to 50 percent

build-out, let alone full build-out.

So the short answer is not enough time has passed to know the

answer to that question. The hypothesis from urban planners is

that we will start to see some physical development in these areas

that might not have occurred in that city had it not been for the

facility. So the long answer is it is possible.

Mr. KUCINICH. You have drawn a distinction in your testimony

between the national view on the question of whether public financing for professional sports stadiums diverts funds from infrastructure and the local view. Which is the more appropriate view

on the question of existence of a diversion from meeting critical

public infrastructure needs, a national or local view? And why?

Ms. LONG. I think that the local perspective is more important.

First of all, because we are talking about major league sports facilities, there is only a relative handful of large cities that host these

stadiums and arenas, slightly over 50, whereas at the national

level, infrastructure is an issue in the over 40,000 jurisdictions in

the United States. So the local level I think is more important, because if we substitute these funds that is where it is happening,

so the $1 billion to $2 billion a year subdivided by those 50 cities,

we are talking about, on average, $10 million per facility per city.

That is a lot of money.

Mr. KUCINICH. Thank you.

Professor Hale, as you may know, former New York State Comptroller Mr. Regan wrote an article where he identified an absence

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of a process based on sound science and analysis to compare and

prioritize infrastructure needs. He also noted there was little public

information about inherent choices before they are made. What is

your explanation, from a process perspective, on why the public infrastructure is not adequately maintained? And then where should

elected officials place the desire to build a professional sports stadium in a list of infrastructure priorities?

Mr. HALE. As you read the initial statement at the opening of

this hearing, you mentioned that there was very little data that

had been going out. This is part of the rationale. We don’t have a

closed loop system here. Much of the data that is being collected

is being collected ad hoc. The data that is being processed is being

processed in multiple different ways. One of the issues that brings

this all to bear is that the stakeholders who should be judging this,

basically the constituents, are not getting reports on what performance should be in most of the infrastructure.

For example, in Alabama one of the areas that we do have reporting is in our freshwater drinking, and in our drinking system

each year we get a report card basically on the quality of water.

In that system, the variation of quality is much less than in the

other infrastructures that we see within our own State.

Mr. KUCINICH. Thank you very much.

I want to go to Mr. Issa right now.

Mr. ISSA. Thank you, Mr. Chairman.

This panel is even more intriguing than the previous one, and I

appreciate all of your testimonies.

Ms. Damiani, you have a wonderful name. You have my sympathies, because I have hated the damn Yankees my whole live,

and as a Clevelander who kicked their ass with a lot less money

this year, as far as I am concerned the Bronx Bombers can just flat

go out of business. It won’t bother me a bit. And Steinbrenner and

all his millions can go do something else.

So, just so we understand, I am on your side on this, and I do

believe that your complaints, which were also heard in the first

previous hearing we held, are a classic example of a failure of local

city government and State government to maintain any or all interest groups, particularly when it relates to a public park and a redevelopment. It is not unique. In California we certainly have had the

taking of one group’s land for the purpose of what a city council

or State assembly thought was to the benefit of somebody else’s.

On that you have total agreement.

So I am not going to ask any questions except to say, one, I

wouldn’t buy the Yankees a new stadium; two, that, in fact, your

point is well taken on the absence of the kind of local control that

should be in every project.

Dr. Maguire, I have just a couple of questions for you. I am using

a little bit of Professor Long’s testimony. If I take her figures and

her figures, there is not a lot of controversy, so let’s just assume

for a moment that 75 cents on every $1 is somehow not by the private company—in other words, professional sports, the National

Baseball League or the NFL or whatever—that 25 percent comes

from them and the other 75 percent comes from public contribution, which is then repaid all or in part by taxes and fees. Fair assessment that the two of you agree on that as good a figure as any?

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Mr. MAGUIRE. Sure.

Mr. ISSA. OK. And we will assume for a moment we are going to take the 1993 to 2005 and call it $18 billion. You two can kind

of agree on that, because I think it is important. If it is $18 billion,

33 percent Federal bracket, we are talking $6 billion in Federal

subsidy over that period of time. Right?

Mr. MAGUIRE. Sure.

Mr. ISSA. OK. The $6 billion, when we play with $2.5 trillion a

year here, I do have to ask are we talking about a relatively small

amount of money in the sense that it is a few hundred million per

year of Federal taxes lost, if I did my math right: $6 billion over

12 years is $500 million a year of lost Federal revenue. Am I doing

my math right?

Mr. MAGUIRE. I assume you are, yes.

Mr. ISSA. OK. Now, if we look at Federal revenues on a global

basis, because I think in the earlier panel there was a good faith

statement that I think is to be considered as a fact, and that is that

if you move these things all around from city to city, at the end

of the day you have the same amount of teams and they are in

some city, and I think that is something we can all agree on. This

is a very bipartisan subcommittee, so we look for what we can

agree on as much as we can. We all kind of agree on that, that

whatever the benefit is to the Federal Government for its $500 million a year, it is roughly the same no matter what city it is in, with

the possible exception of New York, but we are not going to go

there.

If that is the case, what would it take for $18 billion to get $500

million of benefit to the Federal Government per year if a city instead just didn’t have those hotel taxes that typically pay for stadiums? What would be the benefit of that slightly lower tax and not

having the stadium to the city? Because, if I understand it correctly, since it is paid for by taxes almost always that are levied

commensurate in some way with the activity—and in San Diego we

did it with hotel taxes, hotel and drink taxes and so on—those

taxes would either not have been levied or, if they were levied, they

still would have been reasonably justifiable only to promote that

same activity—in other words, clean up the downtown area, dig out

some public other amusement park.

Realistically, can either one of you—and Dr. Maguire first, but,

Professor, you, too—can you put a dollar figure on what not having

this $1.5 billion a year spread over the whole country, this $500

million spread over the whole country if we just didn’t tax that?

The Federal Government wouldn’t get the benefit because it just

wouldn’t have been taxed. What would we really get for it if we

just didn’t spend the money on it and closed down every team for

a moment and just don’t have them? How would you say that impact is to the $500 million to the Federal Government per year?

Mr. MAGUIRE. Well, I have been instructed not to testify beyond

what was in the written testimony and what I spoke about today,

but I will kind of divert things a bit.

Mr. ISSA. Be brave. Be bold.

Mr. MAGUIRE. Be brave and bold. It is about the stadiums, and

it brings back something that happened in a hearing a couple of

months ago, what Dennis Zimmerman said, that the number of

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professional sports teams is restricted, and so one could say on the

demand side a lot of cities want a team but they can’t get them.

Some might even say there should be several more teams in New

York. If you had a more free market for sports teams, you would

have a lot more teams out there without the ability to blackmail

cities into paying more than what they should have for the team.

So if you start with the assumption that there is a perfectly competitive market for sports teams, then I think you have started on

the wrong path. You have to assume that there is some sort of monopoly restriction on the number of teams that are out there. And

then from there you have to wonder what role has the Federal Government played in that somewhat dysfunctional market.

I think I should stop there and defer.

Mr. ISSA. I think that is great. I apologize, I have been running

over to Judiciary all day. We have and we continue to review the

question of antitrust and whether or not, particularly as to limitation of number of teams, whether that is something that we should

take out of the antitrust exemption that, in fact, allows for a single

entity to restrict the number on a national basis.

I will give Professor Long the final word, but I was only trying

to get the ability to say, look, $500 million to the Federal Government in abatement—because that is the only cost, because the rest

of it are taxes that wouldn’t have occurred normally because you

are not going to normally tax the hotel if they don’t feel that they

are getting back a benefit in revenues greater. How big an offset

is it? I think we have been talking in big terms here, but when you

break them down it is actually a relatively small amount into a

$2.5 trillion a year Federal Government.

Ms. LONG. If I understand your question correctly—and I am not

sure that I do—the $10 million on average that a city and a county

government are spending subsidizing a sports facility, how might

that $10 million be better used? Is that your question? Is it the notion of opportunity cost?

Mr. ISSA. Yes. It is strictly a matter of if you didn’t tax because

it didn’t happen, then those two-thirds of the revenues would disappear because the revenues are generally commensurate with the

new construction, so the only difference is the $500 million a year

of Federal taxes. The question is: how big an impact would that

have to those of us in Washington, because our jurisdiction on this

committee is somewhat limited to whether or not that is a fair assessment to give the tax treatment. We have to wrap up. I apologize.

Ms. LONG. This is actually an interesting question and an interesting point. It brings up the point of Denver, where there was a

specific increase in the sales tax in the five-county area that was

dedicated to repayment of the debt issuance for the two facilities

in that case. They expected the bonds to have a duration of 30

years, but, in fact, the bonds were retired after 6 years because the

sales tax revenue had created so much additional revenue more

than they had anticipated.

Then I believe they did rescind the tax increase, so that is an example of a good outcome where the tax is directly and 100 percent

tied to the nature of the cost.

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I am not convinced that in every case there is a complete and

perfect nexus to the cost, and I think that is where the issue lies.

Hotel taxes are not paid exclusively by people who come to town

to view a sports game. In fact, in many case the hospitality industry dislikes additional taxes on tourism revenues because it has an

impact on their other visitors. So I think it is a more nuanced

issue.

Mr. ISSA. Thank you. And thank you for the second hearing, Mr.

Chairman.

Mr. KUCINICH. I want to thank the gentleman.

In order to keep the time evened out here, I am going to ask my

5 minutes and then we are going to be done, if that meets with

your approval.

Mr. ISSA. That is fine.

Mr. KUCINICH. Ms. Damiani, you have testified and previously

written about a process by which the Yankees got a new publicly

financed stadium. What is the experience which you have documented about how the Yankees got public money for the new stadium? What does it say, if anything, about the process, itself?

Ms. DAMIANI. I wish I could say there was a real process. They

needed to go through our city’s land use procedure, which on paper

looks somewhat extensive. There needs to be community hearings.

The Bronx Borough president needs to be involved and the entire

City Council has to approve the project. The local community board

voted overwhelmingly against the project, and afterwards the borough president removed every single one of the members that voted

against it.

The entire city council minus the representative that is right

around Yankee Stadium voted for the project under the guise that

there is this community benefits—I am saying agreement, but

please note that is really not what it was. That is a lingo that has

been picked up. Unfortunately, it doesn’t seem to be clear in the

Bronx what it is.

So they were saying that the reason why many of these officials

were voting for it and approving of this process was because there

were going to be guaranteed benefits on the other end.

Mr. KUCINICH. Let me ask you this question. You said that the

former commissioner of the Office of Labor Relations and Deputy

Mayor for Economic Development ended up as an official of the

Yankees?

Ms. DAMIANI. Yes. Yes, sir. Randy Levine is——

Mr. KUCINICH. Was there any evidence that he was involved in

any of the decisionmaking with respect to the use of land that then

became a benefit to the Yankees?

Ms. DAMIANI. There were some agreements that were approved

at the very end of the Rudy Guiliani administration. Randy Levine

wasn’t there at that exact moment, but suffice to say the experience that he picked up on the taxpayer tab I am sure has greatly

benefited the Yankees’ bottom line.

Mr. KUCINICH. The Yankees are benefiting greatly by the public

financing of the new stadium and parking garage. Have they been

careful with the public money they have used?

Ms. DAMIANI. The public money?

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Mr. KUCINICH. You know, it is undisputed that the Yankees are

benefiting greatly——

Ms. DAMIANI. Yes.

Mr. KUCINICH [continuing]. By the public financing of the new

stadium and the parking garage. Have they been at least careful

with the public money they have used?

Ms. DAMIANI. I am not quite——

Mr. KUCINICH. They have a public benefit, I mean, how they——

Ms. DAMIANI. I am going to say no. There hasn’t been a clear definition as to how the local residents are going to be getting jobs

from this. There have been many conversations about it, but as far

as people——

Mr. KUCINICH. What about the planning money?

Ms. DAMIANI. Rudy Guiliani allowed the Yankees to deduct $5

million a year for 5 years to plan the new stadium, and Mayor

Bloomberg actually extended that for another 5 years. Those planning expenses seem to have done two things: hired former public

officials and experts to make sure that they could get the land use

and the subsidies. So in a sense New York City taxpayers are allowing themselves to sort of be taken advantage of because the

Yankees used that money to then benefit the expediting of the

process.

Most recently, we finally got documents from 2006 that the Yankees gave to the city—now, we are not quite sure whether they

have actually officially deducted them or not, but the receipts were

nothing related to planning costs. There were deductions for crystal

baseballs and salmon dinners on post-season nights and lots of teeshirts and jerseys and the like. So I just want to reinforce that the

local issue that, Congressman, you brought up is very important,

and it is greatly lacking in New York.

Mr. KUCINICH. Final question, Dr. Maguire. As a Ph.D. economist who wrote his dissertation on the economics of professional

sports stadiums, does it make sense for public officials to spend

taxpayer funds on professional sports stadiums? And do stadiums

deliver jobs and revenues as their proponents claim?

Mr. MAGUIRE. I will agree with all the economists that have appeared before you in the past, not found any tangible benefit, just

a shifting of jobs and economic activity, not a new or net gain.

Mr. KUCINICH. Thank you very much, Dr. Maguire.

I want to thank Mr. Issa for his participation in this hearing. It

has been an excellent discussion.

I am Dennis Kucinich, chairman of the Domestic Policy Subcommittee of the Oversight and Government Reform Committee.

This has been a hearing on Professional Sports Stadiums: Do they

Divert Public Funds from Critical Public Infrastructure. I want to

thank all of the witnesses who are here today and thank all of

those who have been in attendance and who are watching the proceedings, and the staff of both the majority and minority for their

assistance in preparing for this hearing.

This committee stands adjourned.

[Whereupon, at 5:25 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Diane E. Watson follows:]

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