[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]




                               before the


                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                             MARCH 29, 2007


                           Serial No. 110-23


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

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

                     U.S. GOVERNMENT PRINTING OFFICE

38-037 PDF                 WASHINGTON DC:  2007
For sale by the Superintendent of Documents, U.S. Government Printing
Office  Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800  Fax: (202) 512-2250 Mail Stop SSOP, 
Washington, DC 20402-0001


                 HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California               TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York             DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania      CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York         JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois             TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      DARRELL E. ISSA, California
BRIAN HIGGINS, New York              KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky            LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                PATRICK T. McHENRY, North Carolina
    Columbia                         BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota            BILL SALI, Idaho
JIM COOPER, Tennessee                JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire

                     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               DARRELL E. ISSA, California
ELIJAH E. CUMMINGS, Maryland         DAN BURTON, Indiana
DIANE E. WATSON, California          CHRISTOPHER SHAYS, Connecticut
CHRISTOPHER S. MURPHY, Connecticut   JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
BRIAN HIGGINS, New York              BRIAN P. BILBRAY, California
                    Jaron R. Bourke, Staff Director

                            C O N T E N T S

Hearing held on March 29, 2007...................................     1
Statement of:
    Demause, Neil, author, Brooklyn, NY; Heywood Sanders, 
      professor, Department of Public Administration, University 
      of Texas, San Antonio, TX; and Michael Decker, senior 
      managing director, research and public policy, the 
      Securities Industry and Financial Markets Association, 
      Washington, DC.............................................   131
        Decker, Michael..........................................   165
        Demause, Neil............................................   131
        Sanders, Heywood.........................................   144
    Hogi, Joyce, Bronx, NY; Frank Rashid, Marygrove College, 
      Detroit, MI; and Nick Licata, president, Seattle City 
      Council, Seattle, WA.......................................    13
        Hogi, Joyce..............................................    13
        Licata, Nick.............................................    47
        Rashid, Frank............................................    35
    Humphreys, Dr. Brad, economist, University of Illinois, 
      Urbana-Champaign, Champaign, IL; and Dennis Zimmerman, 
      director of projects, American Tax Policy Institute, Falls 
      Church, VA.................................................    67
        Humphreys, Dr. Brad......................................    67
        Zimmerman, Dennis........................................    75
    Korb, Donald, Chief Counsel, Internal Revenue Service, 
      Washington, DC.............................................    96
    Murphy, Bob, president, Dayton Dragons, Dayton, OH...........   116
Letters, statements, etc., submitted for the record by:
    Braley, Hon. Bruce L., a Representative in Congress from the 
      State of Iowa, prepared statement of.......................   178
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois, prepared statement of...................    62
    Decker, Michael, senior managing director, research and 
      public policy, the Securities Industry and Financial 
      Markets Association, Washington, DC, prepared statement of.   167
    Demause, Neil, author, Brooklyn, NY, prepared statement of...   134
    Hogi, Joyce, Bronx, NY, prepared statement of................    17
    Humphreys, Dr. Brad, economist, University of Illinois, 
      Urbana-Champaign, Champaign, IL, prepared statement of.....    69
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California, prepared statement of.................    55
    Korb, Donald, Chief Counsel, Internal Revenue Service, 
      Washington, DC, prepared statement of......................   100
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio, prepared statement of...................     4
    Licata, Nick, president, Seattle City Council, Seattle, WA, 
      prepared statement of......................................    49
    Rashid, Frank, Marygrove College, Detroit, MI, prepared 
      statement of...............................................    38
    Sanders, Heywood, professor, Department of Public 
      Administration, University of Texas, San Antonio, TX, 
      prepared statement of......................................   146
    Turner, Hon. Michael R., a Representative in Congress from 
      the State of Ohio, prepared statement of...................    92
    Zimmerman, Dennis, director of projects, American Tax Policy 
      Institute, Falls Church, VA, prepared statement of.........    77



                        THURSDAY, MARCH 29, 2007

                  House of Representatives,
                   Subcommittee on Domestic Policy,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:30 a.m., in 
room 2154, Rayburn House Office Building, Hon. Dennis J. 
Kucinich (chairman of the subcommittee) presiding.
    Present: Representatives Cummings, Kucinich, Davis of 
Illinois, Tierney, Watson, Braley, Souder, Turner, and Issa.
    Staff present: Jaron Bourke, staff director; Noura Erakat, 
counsel; Jean Gosa, clerk; Nidia Salazar, staff assistant; Amy 
Vossbrinck, scheduler, Office of Congressman Dennis J. 
Kucinich; Erin Holloway, legislative assistant, Office of 
Congressman Dennis J. Kucinich; Leneal Scott, information 
systems manager; Jay O'Callaghan and Kristina Husar, minority 
professional staff members; John Cuaderes, minority senior 
investigator and policy advisor; Benjamin Chance, minority 
clerk; and Meredith Liberty, minority staff assistant and 
correspondence coordinator.
    Mr. Kucinich. The Subcommittee on Domestic Policy of the 
Committee on Oversight and Government Reform will now come to 
    Without objection, the Chair and the ranking member will 
have 5 minutes to make opening statements followed by opening 
statements not to exceed 3 minutes by any other Member who 
seeks recognition.
    Without objection, Members and witnesses will have 5 
legislative days to submit a written statement or extraneous 
materials for the record.
    Good morning and welcome.
    This is the second hearing in a series of hearings on the 
state of urban America. The series intends to take a closer 
look at American cities, their progress, their problems and 
their future. Today's hearing will examine the use of taxpayer-
financed debt for the construction of sports stadiums, 
convention centers and hotels as well as recent regulatory 
changes by the IRS that could significantly increase the use of 
tax-exempt bonds for historically private activities.
    Last week, our hearing looked at the subprime mortgage 
industry and the problem of foreclosure, the payday lending 
industry and the enforcement of the Community Reinvestment Act. 
In the coming weeks, we will also take a look at the retail and 
grocery store industries as well as access to health care in 
the heart of urban America.
    Today, we are taking a look at the use of tax-exempt 
financed debt for the construction of sports stadiums, 
convention centers and hotels. My own city of Cleveland has had 
experience in this regard.
    In 1990, the Central Market Gateway Project was formed to 
develop new stadiums for the Cleveland Indians and the 
Cleveland Cavaliers. Developers mounted a ballot initiative 
known as Issue 2 and made claims in their paid advertising that 
will sound familiar to our witnesses: ``Who wins with Issue 2? 
We all do; 28,000 jobs for the jobless, neighborhood housing 
for the homeless, $15 million a year for schools for our 
children, revenues for city and county clinics and hospitals 
for the sick, energy assistance for the elderly.''
    The public relations campaign was coupled with hardball 
threats from Major League Baseball to relocate the Cleveland 
Indians. The initiative passed by a narrow margin and by 1996, 
the total cost was up to $462 million, two-thirds of which came 
from the public, and by 1997, that cost was still rising.
    By the way, for the record, we did invite Major League 
Baseball to testify today. They declined.
    Cleveland had a municipal football stadium and an intensely 
loyal fan base, affectionately known as the ``Dawg Pound.'' But 
that wasn't enough and the Cleveland Browns left Cleveland for 
a new stadium built with taxpayer subsidies in Baltimore. NFL 
officials insisted that a new stadium and not renovations would 
be necessary to get a replacement-football team. Cleveland 
replaced its stadium with a football only structure paid for 
primarily with tax money.
    After spending hundreds of millions of taxpayer dollars to 
subsidize stadiums for professional baseball, basketball and 
football, Cleveland's economy does not show the appropriate 
progress. We have among the highest poverty rates in the Nation 
and one of the highest foreclosure rates. This month marks the 
132nd month or exactly 11 years in which Ohio's job growth is 
below the national average. This figure is unprecedented 
    Whereas Ohio is growing slower than the rest of the 
country, Cleveland is growing slower than the rest of Ohio. 
During the 2000 recession, Cuyahoga County lost 75,733 jobs or 
9.3 percent of all of its jobs.
    The Gateway Project, which promised to generate tens of 
thousands of new jobs ushered in a period of net jobs lost 
since its construction. The Gateway Project neighborhood is 
particularly striking because the neighborhood is even more 
vacant and has even fewer jobs after the construction of the 
Gateway Project than before.
    Nationally, sports stadium construction is not effective at 
boosting the local economy and revitalizing urban 
neighborhoods. Academic research shows that on all counts, 
sports stadiums add no benefit, no substantial economic benefit 
to the cities in which they are built, no new jobs, new 
additional revenue for schools, no new business, no additional 
    In a review of the academic literature, economist Andrew 
Zimbalist concluded, ``Few fields of empirical economic 
research offer virtual unanimity of findings. Yet, independent 
work on the economic impact of stadiums and arenas has 
uniformly found there is no statistically positive correlation 
between sports facility construction and economic 
    While taxpayer-financed stadiums do not seem to add to the 
wealth of the public who pay for them, they do add to the 
wealth of team owners. Consider the Detroit Tigers and the 
Detroit Lions. We will hear about them and their stadiums from 
one of our witnesses today. The value of the Detroit Tigers 
rose from $83 million in 1995 to $290 million in 2001, the year 
after the team moved into their new stadium. The Lions' 
increase in value is even more dramatic, rising from $150 
million in 1996 to $839 million in 2006.
    Economic benefit to the team owners was certainly the case 
for George 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 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 the 
construction costs.
    By 1994, the Rangers, in their new publicly financed 
stadium, were sold for $250 million, a threefold increase in 
value in merely 5 years and one that was largely attributable 
to a new taxpayer subsidized stadium. Mr. Bush personally came 
away with a profit of $14.9 million. In this case, the tax-
exempt financing indisputably benefited the owners of the Texas 
    Public financing of sports benefits the team owners but 
not, according to academic consensus, the public. So is tax-
exempt financing of stadium construction an appropriate use of 
taxpayer funds?
    Well, the law on this matter is the 1986 Tax Reform Act. As 
our witnesses will testify, the 1986 act removed sports 
stadiums from the list of eligible private activities that 
could be financed with tax-exempt private activity bonds. That 
was the state of affairs until last year when the IRS issued 
three rulings.
    Two of them were private letter rulings favorable to the 
Yankees and the Mets, allowing them to use previously 
prohibited private payments for debt service on tax-exempt 
bonds. Thus, the new Yankees and Mets stadiums can be built at 
taxpayer expense. The third was a proposed rulemaking that 
generalized the Yankees and Mets rulings. The effect of these 
three rulings would seem to subvert the intent of the 1986 Tax 
Reform Act as regards to public financing of sports stadium 
    Today, we will have the opportunity to hear from experts 
from around the country as well as from the Chief Counsel of 
the IRS on these questions.
    [The prepared statement of Hon. Dennis J. Kucinich 


    Mr. Kucinich. At this point, I would ask the witnesses to 
    [Witnesses sworn.]
    Mr. Kucinich. Let the record show that the witnesses 
answered in the affirmative.
    I would like to introduce Ms. Joyce Hogi. Ms. Hogi has 
lived in the Bronx, NY, for the past 30 years. Her apartment 
used to look out onto the largest public park in the South 
Bronx. That is Macomb's Dam Park, right?
    She now looks onto a constructionsite for a planned parking 
garage for the new Yankee Stadium.
    She has been a community leader in the unsuccessful effort 
to save public park land in her community from destruction to 
make room for a new Yankee Stadium.
    Why don't you begin with your testimony, and then I will 
introduce the individual witnesses as we go along?

                      COUNCIL, SEATTLE, WA

                    STATEMENT OF JOYCE HOGI

    Ms. Hogi. Good morning. My name is Joyce Hogi. I am a 63 
year old widow who has lived in the Bronx for the past 30 
years, specifically the South Bronx area surrounding Yankee 
Stadium. Thank you so much for this opportunity to submit 
testimony concerning the community's reaction to the alienation 
of our public park land for private use by the Yankee Stadium 
    This morning, I will tell you the sad story of how 22 acres 
of park land primarily known as Macomb's Dam and the southern 
portion of John Mullaly Parks were taken from our community, 
how the shameful consequences of the construction of the new 
stadium is on the destruction of our parks.
    I have laid out my testimony in three sections.
    The importance of the parks to the community: Macomb's Dam 
was opened in 1899. It immediately drew neighborhood children 
and aspiring athletes to its extensive recreational facilities. 
The quarter mile track was a favorite for local and European 
runners. The track was named Joseph Yancey Track and Field in 
honor of the co-founder of the New York Pioneers Track and 
Field Club, an interracial team that developed many Olympic 
    These parks are located in the poorest congressional 
district in the United States but were essentially our Central 
Park. It was one of the few linear parks in New York City. 
These parks continued to be used for sports activities for both 
adults and youth after all these years. They were invaluable to 
us. They contained a soccer field, a running track, two 
baseball and softball fields, handball and 16 tennis courts.
    The process that set in motion the demolition of our parks 
had no standard and was arbitrary and capricious.
    The overall view from the New York City Department of Parks 
and Recreation stated that it proposed to allow for the 
redevelopment of a new Yankee stadium by the Yankees on 
portions of those parks adjacent to the existing stadium site. 
This new open air stadium with a capacity for 54,000 
spectators, which I might add is 4,000 less than the current 
facility seats, would replace the existing 82 year old stadium 
which can effectively accommodate a modern baseball team and 
provide greatly improved spectator and parking facilities. This 
project proposes to construct four new parking garages.
    This statement sounded the death knell for the parks and 
for the thousands of residents and school children in an area 
deficient of parks, exacerbating other problems already 
experienced by us. After our initial shock, we came together as 
a community.
    Our New York State legislators, on a day at the end of the 
legislative session when hundreds of bills were passed, removed 
the protections ensuring that our beloved parks would remain 
undeveloped in perpetuity. They decided it was in our best 
interest to offer a parcel of land that is 40 percent bigger 
than that of the World Trade Center, not for a public good but 
to enrich a private business.
    We at SaveOurParks! obtained the transcript from the 
assembly and were just stunned to see how casually the vote to 
relinquish our beloved park land in such an impoverished 
community was conducted. Despite the fact that no efforts were 
made to inform the community of the impending park alienation, 
the assembly member who introduced the bill proclaimed no 
community opposition to the project. We were shunned by our 
elected officials, and we were accused of bringing in 
professional protesters by Randy Levine, president of the 
Yankees Organization, as if the community could not discern 
when it was getting a bad deal.
    The media mostly was enamored and was not able to 
understand the community's point of view as the Yankees had 
hired Howard Rubenstein Associates, a major well connected 
public relations firm in New York City to provide a steady 
stream of material to all the media outlet, selling their 
    While some newspapers would print an occasional account of 
the proceedings, Patrick Arden of Metro New York got it and he 
stayed on the case. He understood the injustices. He showed up 
at all our hearings. He wrote about it every chance he could 
    SaveOurParks!, supported by other organizations seeking 
alternative transportation, believed that everything should be 
done to encourage mass transportation to alleviate the need for 
the garages. We are in a highly affected asthma community.
    We argued for improved subways, the building of a Metro-
North station at Yankee Stadium and for the rehabilitation of 
the neighborhood's Melrose train station on the Harlem and New 
Haven lines. We argued for train tickets tied to game tickets 
as an incentive to use mass transit. We have a congressional 
appropriation for $2.4 million to upgrade the Metro-North 
stations in the Bronx and to construct a stadium at Yankee 
Stadium. Everything seemed to be lined up for a station, but 
the project did not address it.
    Economic development for the community will occur as a 
result of this new stadium, we were told by the supporters. We 
contend that economic development will occur as a result of our 
changing times, not by a stadium. The New York Yankees have 
been our neighbors for over 80 years. Given the poverty and 
unemployment rates in the South Bronx, it would seem that no 
economic benefits have been realized of having the legendary 
Yankees in our community.
    We were told at a contentious community board meeting by 
parks officials that we are getting bigger and better parks 
that we would not get if the Yankees weren't building a new 
stadium. We already had funds allocated to refurbish those 
parks, and the waterfront parks that we were promised were 
already included in the plan by the city to build pathways 
along the entire Harlem River. So it did not need to be a part 
of this project.
    Additionally, the replacement parks we are promised are 
scheduled to be built atop concrete parking garages and are 
subject to closure on game days for security reasons.
    Macomb's Dam Park was renovated in the 1980's with Federal 
funds. To gain approval to convert this park to a non-park or 
private use required that the following criteria be met: that 
the review must look at practical alternatives for the project, 
that new park land must be of the same market value and that 
new park land must be of equivalent usefulness and location. 
None of these applied.
    The plan states that the Bronx does not have enough quality 
park land in the first place. It also says that new park land 
is supposed to be easier for people with disabilities to get 
to. The parks on top of parking garages are not easier.
    The consequences for Macomb's Dam and portion of John 
Mullaly Parks caused by the construction of the new Yankee 
Stadium, in a word, shameful. Imagine living across the street 
from a major development, 100 feet or so, with trucks lining up 
outside as early as 4 a.m., idling for up to an hour or longer.
    Imagine dust coming into your apartment that cannot be 
controlled regardless of how tightly your windows are closed. 
Imagine mud and water ponding on the streets in front of you.
    Imagine, if you will, the noise from jackhammers going 
nonstop. I have had residents tell me they leave home during 
the day because they cannot stand the noise.
    Imagine water from your taps running brown from who knows 
    Imagine trying to cross a busy street with children or as 
an elderly person dodging traffic because drivers are losing 
patience with trying to maneuver around all the truck traffic.
    Imagine the tennis center vendor who lost nine of his 
courts to the construction but was told he could operate until 
the end of April 2007. He received a letter from DPR, the 
Department of Parks and Recreation, a week before he had to 
close the remainder of the courts on February 28th because 
construction was ahead of schedule and storage equipment would 
now occupy that space.
    Imagine the drone of helicopters flying over the 
construction area up to 7 days a week.
    Our parks and over 400 trees were sacrificed to make room 
for the new stadium and four new parking garages. The stadium 
will sit in a residential area 100 feet from several fully 
occupied apartment houses. Residents of these buildings will 
face a monolithic 14-story wall enclosing the stadium isolating 
residents, even the numerous Yankee fans, from the 
neighborhood. Imagine the trees you are used to seeing outside 
your front window.
    There has been a total lack of accountability during the 
    Finally, around midnight, Sunday, August 13, 2006, the 
Parks Department staff came into our community, closed off this 
lovely tree-lined 167th Street, put up fencing around Macomb's 
Dam Park, posted security guards and trucked what was later 
determined to be very high quality mulch to put around the 
trees as a backdrop for the groundbreaking of the new stadium 
scheduled for a couple of days later.
    When residents arrived on Monday morning for their walks, 
jogs on the track, they were told this is private property and 
they weren't let in.
    The day after the groundbreaking, the trees were cut down.
    We had counted on the National Park Service to protect us. 
We found later on they were complicit with the city, the State 
and the Yankees prior to our learning about the project to hand 
over those federally funded parks to the Yankees.
    Thank you very much.
    [The prepared statement of Ms. Hogi follows:]

    Mr. Kucinich. I want to thank the witness, Ms. Hogi, for 
her participation in this.
    Before I introduce the next witness, I want to ask the 
witnesses to endeavor to keep their testimony to 5 minutes, and 
your entire testimony will be included in the record of the 
    At the end of this first panel, our ranking member, Mr. 
Issa, will be making a statement, and all other Members who 
wish to have their statements put in the record will be so 
    At this point, I would like to introduce Mr. Frank Rashid. 
Is that the right pronunciation?
    Mr. Rashid. Correct.
    Mr. Kucinich. Mr. Rashid is a professor of english 
literature and the English Department Chair at Marygrove 
    He has lived in Detroit, MI, his entire life and was a 
founding member of the Tiger Stadium Fan Club. The fan club 
engaged in a successful decade-long battle to block public 
stadium subsidies in Detroit.
    Mr. Rashid is on the advisory board of Wayne State 
University Press' Michigan Writers Series and serves as vice 
president of the Michigan Association of Departments of 
    Welcome to this committee. We look forward to your 

                   STATEMENT OF FRANK RASHID

    Mr. Rashid. Thank you very much.
    Good morning. I thank the Members of this honorable body 
for inviting me to testify about my experiences in fighting 
against public subsidies for stadiums.
    Mr. Kucinich. Would you like to start over and keep that 
mic close?
    Mr. Rashid. Sure.
    Mr. Kucinich. I would ask all witnesses to keep the mic 
relatively close. Thank you.
    Mr. Rashid. Thank you for inviting me to testify about my 
experiences in fighting against public subsidies for stadiums.
    In 1987, four friends and I formed a group intended to save 
Tiger Stadium, the home of the Detroit Tigers. We began our 
efforts by highlighting the stadium's distinctive history and 
its role as common ground for generations of Detroiters. We 
discovered, however, that the most compelling reason to save 
the stadium was to save public money, and we committed to a 
fight to prevent public stadium subsidies. That fight lasted 
nearly 10 years.
    We used every legal method to block public stadium 
financing, but we finally ran out of options and money. The 
Tigers moved into Comerica Park in 2000. Two years later, the 
Detroit Lions, who in 1975 had moved to a publicly financed 
suburban stadium, returned to Detroit again helped by public 
subsidies. Downtown Detroit now has two new stadiums absorbing 
hundreds of millions of dollars in direct public financing.
    Local officials promised that these stadiums would bring 
new jobs, economic spinoff, contracts for minority firms and 
increased city revenues for more police and city services. Not 
one of these promises has been fulfilled. In the last 2 years, 
the city has hosted the All-Star Game, the Super Bowl and the 
World Series, but city residents have seen no benefits from 
these events. Detroit faces a financial crisis and has to cut 
police and fire protection, library hours and trash pickup.
    Comerica Park and Ford Field have operated for six and four 
seasons, respectively, but the blessings of major league sports 
have yet to rain down upon us. Franchise value and ticket 
prices, however, have increased dramatically. In effect, we 
gave hundreds of millions of dollars to two billionaires so 
they could increase their wealth and raise their prices.
    Detroit's two stadiums suck up resources that could go to 
schools, police, libraries, parks and proven development 
strategies. The Michigan Strategic Fund was established in 1984 
to promote economic development and create jobs. Wise 
stewardship of this fund could have helped to address 
Michigan's economic crisis. Instead, we wasted much of it on a 
stadium that employs the same number of people as the one it 
    Replacement stadiums like Comerica Park and the proposed 
New York stadium absorb ancillary revenue-generating activity 
for the team owner, eliminating small businesses, parking lots, 
souvenir stands, bars and restaurants that contribute more to a 
local economy than one large recipient of abatements and 
    Detroit must close 30 public schools, but we have two new 
stadiums. We have shut down several public library branches and 
restricted hours in those that remain. We have few organized 
Little Leagues, and we can't maintain parks and playgrounds for 
children, but we have two stadiums for the big leagues and 
their millionaire athletes.
    Detroiters have to report accidents and crimes at police 
precincts, and we must travel further now to do so since the 
police department has replaced 15 neighborhood precincts with 
six centralized districts. Our mayor proposes days off without 
pay for city workers including fire and emergency responders 
and curtails trash pickups, but the two new stadiums receive 
plenty of police protection and their trash always gets 
    We call animal control and get no answer. We report a 
dangerous building and get placed on hold. We call 911 and get 
a busy signal. We pay the highest millage rate of any 
municipality in southeast Michigan. We can't afford enough 
emergency workers and phone lines, but we have two new 
    Detroit needs solutions that would come from a 
comprehensive urban policy that equitably distributes resources 
and opportunities. We can list strategies that would strengthen 
our city and improve our quality of life. Two new stadiums are 
not on this list.
    But stadiums offer politicians the appearance of 
accomplishment. With limited available funds, Detroit officials 
focused on stadiums because their powerful beneficiaries--major 
league sports, team owners, developers, bond attorneys, 
construction firms, building and trade unions--would support 
the campaign to make them happen. Our local leaders persuaded 
voters that stadiums would solve myriad social problems. They 
pushed the projects through approval quickly with as little 
legislative oversight as possible, then sold the stadiums to 
the public and then dispensed the funds.
    At first, we were incredibly naive about all this. We 
assumed that leaders of cash-strapped cities and counties 
wanted to save money. Our self-financing stadium renovation 
plan received praise from architects, stadium experts and 
baseball historians, but most politicians dismissed it.
    Finally, a sympathetic development consultant explained to 
us that its budget was too small and it required no public 
money. We should have made the project bigger, he said. How 
could we expect politicians to be interested when we gave them 
no role?
    I now understand why so many wasteful schemes receive 
funding while proven strategies get no support. Publicly funded 
stadiums are distractions from purposeful solutions to the 
urban crises.
    As a lifelong Detroit resident, I am grateful to the 
members of this committee for holding hearings on the state of 
urban America and especially grateful for allowing me to 
    [The prepared statement of Mr. Rashid follows:]

    Mr. Kucinich. Thank you very much, Mr. Rashid.
    I want to note my gratitude for the presence of my 
colleagues, Mr. Davis, Mr. Tierney, Mr. Braley, Mr. Turner and, 
of course, Mr. Issa.
    I would like to introduce our next witness, Mr. Nick 
Licata. Nick Licata is the president of the Seattle City 
Council in Seattle, WA.
    Mr. Licata has a history of civic activity and community 
involvement. Among his list of activities, he was Co-Chair of 
Citizens for More Important Things. The group opposed excessive 
public funding for professional sports stadiums.
    Welcome, Mr. Licata, and you may proceed.

                    STATEMENT OF NICK LICATA

    Mr. Licata. Thank you. Thank you, Chairman Kucinich and 
Ranking Member Issa and members of the Subcommittee on the 
Domestic Policy for asking me to speak to you today.
    I am Nick Licata, as was pointed out, a Seattle City 
Council Member and for the past 12 years have been at the heart 
of Seattle's debate about the use of public funding for 
professional sports stadiums.
    In 1995 before I was elected to the City Council, I did 
indeed co-found the Citizens for More Important Things along 
with Chris Van Dyk and Mark Baerwaldt, two other businessmen. 
This group fought the use of taxes to construct three stadiums 
for professional sports organizations over the past dozen 
years, and appendix 1 that you have provides a chronology of 
the efforts to secure public funding for these facilities in 
Seattle. It is a pattern that has been repeated across the 
Nation where perfectly useable facilities are declared too 
shabby for the home team.
    Seattle rebuilt our Seattle Coliseum in 1995 to the 
specifications of Seattle's professional basketball team.
    Mr. Kucinich. You can hold on for a minute until we get 
these buzzes.
    Don't believe the 15 minutes. You will have your time.
    Mr. Licata. OK, great, this will be shorter than 15 
    I would like to outline three experiences, the first with 
our professional basketball team. In 1995, Seattle rebuilt our 
Seattle Coliseum to the specifications of this professional 
basketball team, the Supersonics, and we created the state-of-
the-art NBA Key Arena at a public cost of $75 million. The sale 
of luxury boxes was to pay for the construction of those bonds. 
When the team could not sell enough luxury boxes, basically, 
the city had to pick up the tab. Nine years later after the 
city has paid millions annually, over $6 million a year 
annually and over half the public debt still outstanding, the 
team said they wanted a new facility because it was outdated.
    What happened then was that when they got the cold shoulder 
from the politicians and the public, the Sonics were sold for 
an estimated $80 million profit for the new owner who now wants 
the public to contribute $400 million for an even bigger 
    In the case of our baseball team, in 1995 while the city 
was remodeling the Coliseum for the Supersonics, our 
professional baseball team, the Mariners, declared that their 
venue, the 18 year old Kingdome, was obsolete for baseball and 
threatened to leave Seattle if they were not provided with a 
new stadium with a retractable roof at the cost to the public 
of over $300 million. The previous year, the county had spent 
$73 million repairing the Kingdome's leaky room where they 
played, and a few weeks after local voters rejected a sales tax 
to pay for the new Mariners stadium, the State legislature met 
in emergency session to approve a tax package that eventually 
built it despite voters' wishes.
    In the case of our professional football team, the Seattle 
Seahawks, seeing how successful the Mariners were, demanded 
they too wanted significant remodeling of the Kingdome and they 
threatened to move to California if they did not get it. Before 
they could move, Microsoft founder Paul Allen purchased the 
team, subject to public approval of a $300 million public 
funding package. He spent $7 million on the election, outspent 
the opposition at least 1 to 20 if not 1 to 40, and won the 
election by 00.2 percent. The Kingdome then was imploded with 
still $100 million debt unpaid.
    Now what does this pattern reveal? It says just what our 
city staff discovered when reviewing the life of professional 
sport facilities around the Nation. When public money is used, 
professional sport facilities are remodeled every 6 years.
    Why? Because public money is readily available and free to 
the teams.
    Where does this money come from? Proponents have argued 
that these taxes are insignificant since they are on restaurant 
meals, hotel rooms, car rentals and other retail purchases. 
This mixture of revenue streams does mount up. If pending State 
legislation in our State passes for the new Sonics basketball 
arena and a speedway for NASCAR as they are also requesting 
public funding, our city, county and State governments will 
have contributed $2.3 billion over the past two dozen years for 
new professional sport venues.
    Our own Seattle experience has shown that the cost continue 
to go up. Appendix 2 that you have shows that certain crimes 
increased around the two new stadiums from what they had 
previously been in the same neighborhood, contributing to 
increased public costs.
    In ending, let me say that our economy, the Seattle 
economy, had a downturn. There was a National downturn, but our 
stadiums in no way contributed to lessening that downturn and, 
in fact, took money away from Seattle that we could have spent 
in providing basic services to our citizens.
    [The prepared statement of Mr. Licata follows:]

    Mr. Kucinich. Thank you, Mr. Licata, president of the 
Seattle City Council, for your testimony.
    We are now going to have the statement of the ranking 
member, Mr. Issa, and at the conclusion of that, we will take a 
short recess to go vote.
    Mr. Issa, you may proceed.
    Mr. Issa. Thank you, Mr. Chairman.
    I am particularly happy that we are having this hearing 
today because I believe Mr. Chairman and I think former Mayor 
Michael Turner who is also going to be participating here today 
would agree that there are right ways and wrong ways to do it.
    I think it is very insightful for us, even though we don't 
have prime jurisdiction, through our granting of tax-exempt 
status for these projects, federally tax-exempt status, to 
evaluate whether they should be done under the conditions they 
presently are. We have individuals from the IRS and other bond 
officials that will be testifying later.
    I think that very much it is going to cause us to look at 
the good, the bad and, as I heard today, in many cases what you 
would say would be the ugly.
    I have the privilege, though, of representing the city of 
San Diego, and I have firsthand knowledge of the economic boom 
that resulted from our newly built baseball park, PETCO Park, 
which is the home of the National League West Champions, the 
San Diego Padres. Our story was different than the ones I have 
heard in your cities. In November 1998, over 60 percent of San 
Diego's voters approved Proposition C. The MOU between the 
Padres and the city of San Diego and the City Center 
Development was the only legislative action required for the 
baseball park.
    We went through more than 5 years, though, of litigation by 
one after another individual, some of them particularly notable 
being landowners of a warehouse district, a district that 
didn't have individuals living there and by most people's 
standards, even though it was a downtown distance within 
walking distance of our finest oceanfront area, was in fact 
blighted. The owners did not say they didn't want to sell. They 
simply said they wanted to be made a lot more for warehouse 
districts. They were paid a lot more than would be based on the 
tax rolls in that district, a lot more.
    After the successful condemnation and 5 years of 
litigation, PETCO Park was built in what had once been a 
blighted warehouse district.
    Today, we have 7,385 residential units in that district. 
These are units of choice. These are expensive units. These are 
units that range up into the multimillion dollar range, and 
these are units that were 100 percent sold because San Diego 
became revitalized around this project. This project was not 
squeezed in. It was designed from the ground up.
    We also have added 747 new hotel rooms, again over 90 
percent filled.
    The direct documentable economic value is $3.73 billion of 
property tax evaluation increase. Now, in California, you just 
take 1 percent of that or $37 million and you would get the 
direct property tax revenue increases. Needless to say, we are 
talking in multiples of that when you look at our revenues from 
sales tax and others.
    Quite candidly, if baseball players were required to be 
residents of the State of their home team, it wouldn't help you 
in Washington, but in California that would add roughly 10 
percent of their often high salaries to the economic revenue.
    I am proud to say that John Moore, the owner of the Padres, 
does contribute heavily to local baseball and softball. He has 
built every single year a new, at his cost, baseball facility 
for the youth around the city and the county and continues to 
give back and give heavily.
    We were fortunate. We had a multi-billionaire who moved to 
San Diego and bought a team that was in trouble and has 
invested net in it and in the redevelopment, from day one, said 
that he wanted that to be a redevelopment that was a positive 
for the city.
    It is an unusual story to tell, but I wanted it told 
because as I hear with more than little bit of dismay how 
cities can go wrong, I also want all of us to realize that it 
can be done right and hopefully will be done right in the 
future perhaps because of tax policies that we work on here 
    Mr. Chairman, I thank you and yield back.
    [The prepared statement of Hon. Darrell E. Issa follows:]

    Mr. Kucinich. I thank the gentleman.
    This committee will take a 15 minute recess, at which time 
we will return to question the witnesses. Thank you.
    Mr. Kucinich. This is a hearing of the Domestic Policy 
Subcommittee. I am Congressman Dennis Kucinich from Cleveland, 
OH, the chairman of the subcommittee.
    The title of our hearing today is, ``Build It and They Will 
Come: Do Taxpayer-Financed Sports Stadiums, Convention Centers 
and Hotels Deliver as Promised for America's Cities?''
    We have heard from our first panel, and now we are going to 
have questions. I am going to have at least one question for 
every witness, and I would like to ask each of you the same 
question, and I ask for a brief response. We will start with 
Ms. Hogi.
    Does building a new sports stadium bring growth, 
revitalization or prosperity to the city and neighborhoods?
    Ms. Hogi. I would answer no, not in the way that it was 
done to Yankee Stadium. Were there more involvement with the 
community who had great suggestions of how to fashion this new 
stadium, it would have involved a big infusion of economic 
growth to the area.
    Mr. Kucinich. Mr. Rashid.
    Mr. Rashid. I would say that even in cases where it appears 
that a stadium hasn't done any harm, it is rare that if you 
really look at the numbers, it could do any good. There are so 
many more important things that we can do as cities and as a 
society to serve our people with public money, that there 
really is very little excuse for wasting hundreds of millions 
of dollars on publicly funded stadiums.
    Mr. Kucinich. Council President Licata.
    Mr. Licata. I have not seen any visible evidence that the 
neighborhoods that the stadiums have been located in have 
benefited in any significant or even marginal way, and as I 
pointed out in our appendix 2, we do know that our public 
safety costs have gone up.
    Mr. Kucinich. I have another question. I would like to ask 
each of you to answer, and I would ask again for you to make 
your response brief.
    What, in your opinion, motivates team owners to seek public 
financing for new stadium construction? Ms. Hogi.
    Ms. Hogi. In a word, greed.
    Mr. Kucinich. Mr. Rashid.
    Mr. Rashid. I would say that it is a tremendous opportunity 
for private business to increase its profits and the value of 
its business by shifting the costs of its physical plant onto 
the public, and then basically they charge. The public incurs 
the risks, and the private owner takes all the benefits.
    Mr. Kucinich. Mr. Licata.
    Mr. Licata. Basically, they see the opportunity to shift 
the risk to the public sector. So, therefore, their profit 
margin is protected, and they have a better opportunity for 
running a more profitable team.
    Mr. Kucinich. OK, I want to thank this panel for its 
    I want to ask does Ms. Watson have any questions of this 
    Ms. Watson. Thank you all for coming.
    I just want to add a comment. I think this is a very 
significant question at this point. How do we benefit in our 
    I am from Los Angeles and represent Los Angeles, Hollywood 
as well, and I just want to say that we have been trying to get 
a football team in our coliseum. Well, all of them want the 
proceeds from parking. I just want to know if that is the case 
as well. The proceeds from parking go to support the School of 
Science and Math that we have built in that complex. And so, we 
have, not for years, had a team. I find that they want 
everything within the surrounding area.
    We are just lucky in that area because we have the 
University of Southern California that is well endowed and 
receives a lot of grants for research. We are trying to really 
build the heart of South Central, and that is where it is.
    In New York, are all of you New York? Oh, well, in your 
cities, are you finding same thing? If they do come in, it will 
benefit them and they pay tremendous wages to their players and 
all, but it doesn't necessarily build a community. I would like 
to have a comment from you.
    Mr. Licata. Well, I can kick off and say that specifically 
regarding parking in both instances, the stadiums and now 
basketball arena, the parking revenue used to go to the city 
which we use for general funds which is basically for 
everything. When they move in, they want the revenue from the 
parking, so that is a pattern we have seen in our city.
    Mr. Rashid. I would say that overall what happens when a 
new stadium is built in Detroit in particular, the whole idea, 
part of the plan of building the stadium was so that the owner 
could absorb revenue-generating activities that were formerly 
controlled by smaller independent business people as well as 
churches and programs that did it for fundraising, used parking 
revenues and other revenues for fundraising as ways of 
supplementing their funds. These were programs, for example, 
for young women in trouble or for churches that were running 
soup kitchens.
    So, basically, what happened when we moved to a new stadium 
was that now the owner controls all of that parking. And those 
activities don't have that same advantage. It is a net loss.
    Ms. Hogi. My colleague on the next panel, Mr. deMause, 
would be more proficient in that area than I. I can say that 
the parking garages are operated by private vendors in New 
York. Other than the regular business tax, I don't see how it 
benefits the area.
    The one big parking garage right now is closed to the 
community on non-game days. So, essentially, it sits fallow. 
The four new garages that are scheduled to be built are being 
built for the fans, the spectators, not for the community. So 
it is not even a year-round revenue. As a matter of fact, they 
have not found a private developer yet to build those parks.
    Mr. Kucinich. The gentlelady's time is expired.
    Ms. Watson. Thank you, Mr. Chairman.
    Ms. Hogi. OK.
    Mr. Kucinich. I thank the witness for her testimony.
    We now are going to have questions from Mr. Souder.
    Before we get to Mr. Souder, I just want to say that, 
without objection, at the conclusion of panel one in deference 
to the inevitable time constraints of the IRS, we are going to 
have a change in panel two. We are going to be hearing from 
Dennis Zimmerman, Brad Humphreys and then the IRS in panel 
three. In deference to the minority, we are going to move up 
the order of testimony on panel four to hear from the witness 
from Dayton. Without objection, so ordered.
    Mr. Souder.
    Mr. Souder. Thank you. I am sorry I missed the testimony. I 
was scrambling through here to try to catch up a little bit. I 
just had a couple of basic questions and let me put a couple 
together and then I would be interested to hear your responses.
    Do you believe that it is always a bad idea or do you 
believe that bad deals were cut?
    In other words, in St. Louis, my understanding is when they 
did the redevelopment there, they worked because some of it had 
public housing in it. They worked some agreements with the 
public housing groups, and they had some of the low income 
housing restored which they would have not been able to do had 
they not done the stadiums.
    So I am wondering even like in the case of Seattle and 
Detroit or, for that matter, New York, a second question rises, 
and that is this intangible because I share your concerns that 
it seems like the owners of the teams particularly when they 
resell and make horrendous amounts of money and they sell lots 
of food in the stadium, control some of it. I share a lot of 
those concerns.
    At the same time, there are some intangibles in downtown 
development like core city image. Detroit, for example, had the 
Tigers. It is one thing to say keep the historic structure. It 
is another thing what if they had moved up to Pontiac or out to 
the suburbs. What if, in Seattle, they had gone out into the 
suburbs? What about if, in New York, they went out even further 
into Long Island?
    In fact, one of the intangibles that you get here is that 
suburbanites will come into the urban center. It helps the 
image of the city.
    Then last with this same kind of intangible question, the 
fact that some cities didn't get the return that they thought, 
is that related to other things that weren't in control and was 
it, in fact, a zero sum game that the money wasn't put in 
crime, the money wasn't put in downtown development?
    Or, for example, in downtown Detroit, is the problem so 
systemic that no matter what is done? From what I can tell 
there has been some change. The casinos may, unfortunately be 
more a part of it than the sports. I would be interested in 
some comments.
    Mr. Licata. Why don't we just go down the row? Regarding 
the question, could some projects be more successful than 
others depending on what the mixture, you would have to 
investigate that city by city and process by process.
    I can say that in our situation with the professional 
basketball team, the citizens voted over 70 percent to say that 
yes, we will put money in. We just want a fair rate of return, 
looking at, say, a percent of what we earn on Federal bonds, 
pretty meager, and the public turned it down. So I think the 
public wants something very visible, and they want a good fair 
    On the image, that is almost immeasurable. But I can say 
that in Seattle's case vis-a-vis the city of Vancouver, BC, who 
we compete with on a image-Pacific-international basis, they do 
not have the kind of professional teams we have. We are 
fighting for them every day for business, so it doesn't seem to 
give us any advantage over them.
    Mr. Rashid. I think that this is a false dilemma. We are 
not really, if you really want to look at what a project will 
do, at the beginning of a project, you have an opportunity to 
examine, do a full independent cost-benefit analysis. If we are 
going to spend this money, is this the best possible use? That 
is an opportunity for a community to really look at what is the 
best possibility.
    From an independent analysis, if that happens and if 
stadiums come up there at the top of the list, then fine, make 
sure that happens. Make sure that works.
    But you know there are all kinds of wonderful places in the 
United States to live that don't have professional sports. It 
is not like my life as a Detroiter is really directly hit by 
professional sports. If it were, we have had the World Series, 
the All-Star Game and the Super Bowl in the last 2 years, and 
we have terrible budget deficits. Nothing has happened to touch 
the people of Detroit as a result of having professional 
    We have had the top events and all of the television 
exposure. Is your image of Detroit really significantly 
improved by having those kinds of events and that kind of 
exposure? You can't eat image.
    Mr. Souder. Winning the World Series might.
    Ms. Hogi. I believe Mr. Rashid in that, and New York is 
unique. Yankee Stadium is only used for Yankees games. During 
off season, it is an economic dead zone not just to the 
community, but nothing happens there. Nothing happens. We are 
just looking at closed garages and an empty stadium.
    Mr. Kucinich. The gentleman's time is expired.
    Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. I 
want to thank you for calling this important hearing.
    In my congressional district, I live in Chicago. We have 
actually built three complexes in the last several years, all 
in my district. In the 1980's, what is now Cellular Field, Sox 
Park, the home of the Bulls, the stadium where the 
championships were won and a new McCormick Place.
    In each instance, there were proposals that community 
residents and civic groups were not in favor of. For example, 
the first one at Sox Stadium or Cellular Field, there was great 
fear that Wentworth Gardens, a public housing development, 
would be totally wiped out. However, as a result of community 
interaction and action and protest and demonstration and 
negotiation, Wentworth was left intact. Lots of negotiation 
took place around the building of the stadium and concessions 
were made.
    My question is how impactful have community protests or 
community positions been in each one of the instances in which 
you have been involved?
    Ms. Hogi. I would like to go first on this one because in 
our case, we have a time line that shows how quickly our parks 
were alienated before the community knew about it. There was no 
community involvement. Our previous borough president had a 
plan for a Yankee Village that included a new or renovated 
stadium, numerous business ventures that no one even looked at. 
So had we had the chance to interact, we could have provided a 
lot of good input that would have minimized the opposition to 
that project.
    Mr. Davis of Illinois. Yes.
    Mr. Rashid. We appeared to have some success in delaying a 
stadium project over time, and in fact the mayor of Detroit 
once said that we had helped by not getting a bad stadium 
project built. However, in retrospect, I think that no matter 
how much we did, the fact that we now have two stadiums in 
downtown Detroit absorbing huge amounts of public revenue or 
public resources shows that we really didn't have tremendous 
effect and that when the powerful interests wanted to 
collaborate on a stadium project got together, it really didn't 
matter how much the citizens could do.
    The citizens really, in our final campaign, we had about 
$25,000 to run against a $600,000 or more public relations 
campaign. There was no way we could effectively get our word 
out against that.
    Mr. Licata. To the extent that communities can get 
involved, then the stadiums or arenas that are built will 
probably include some amenities to the immediate communities in 
that vicinity of those institutions, but they will not, in the 
long run, be able to forestall or stop the stadiums or arenas 
from being built.
    Generally, what I have seen is that those in favor of those 
construction projects cherry-pick the leaders of what they want 
to represent the various communities. So it is I don't want to 
say a stacked deck, but it is definitely marked.
    Mr. Davis of Illinois. Let me just ask finally, are you 
opposed to public financing in part or do you think that there 
is room for public-private partnerships in the building of 
these kinds of facilities?
    Ms. Hogi. Public-private partnerships, definitely.
    Mr. Rashid. I think that each project has to be looked at 
very carefully and really independently analyzed, and that is 
the problem. Right now, there is no independent analysis. I 
think if there were, we would see considerably fewer publicly 
funded stadiums and a lot more money from the private sector in 
those projects.
    What happens now is there is a real interest. There is a 
whole set of powerful interests that can control the debate. 
What really needs to happen and where I think Federal 
enforcement would be very valuable is in establishing 
requirements that there be real solid and verifiable analysis 
for each project, and that is not done.
    Mr. Kucinich. The gentleman's time is expired.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    Mr. Kucinich. Thanks, Mr. Davis.
    [The prepared statement of Hon. Danny K. Davis follows:]
    Mr. Kucinich. Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    In my opening statements, I think I made it clear that San 
Diego views itself as an exception, not an exception to 
lawsuits that tried to delay, perhaps an exception in that many 
of the people who were involved in the suit simply wanted more 
money for a warehouse than they had paid for it a few years 
earlier which sounds like many of your opening statements and 
the chairman's opening statements about professional sports 
teams. So I think when there is an opportunity, there is no 
question. There are people who are opportunists.
    But for this committee, even though we don't have the prime 
jurisdiction over taxes to say the least, a lot of what we have 
in Congress is tax authority, the ability to evaluate and to 
tighten up the standards or, candidly, loosen the standards on 
what gets tax-exempt bonds which, as you all know, makes a big 
difference in whether a city will go forward. If we don't grant 
a tax-exempt bond for a new sewer system, it increases the 
price of the sewer system. If we do provide tax-exempt status 
for a baseball park, it reduces the cost through a Federal 
    For each of you who have both obviously the public 
participation at the city level but the Federal Government 
contributed to these projects, what conditions would you say we 
should look at insisting on before we grant the tax-exempt 
category which is our primary authority here in Congress for 
these projects?
    In other words, when we say to a city, county or State, yes 
or no, we will grant, what should these projects have to do in 
your opinions?
    Mr. Licata. I will kick off.
    I think the bottom line is that the public wants to be put 
in the same position as the business investors. They want a 
fair rate of return. If there is some way that the Federal 
Government can say that in order to get tax-exempt status on 
these bonds, we have to see a definable, measurable benefit to 
the public.
    I am not sure how you go about doing that, but I think that 
would certainly go a long way to solving this problem.
    Mr. Issa. Would the first step be a positive tax revenue to 
at least a combination of city, State and Federal Government?
    Mr. Licata. That would be a good first step.
    Mr. Issa. Mr. Rashid.
    Mr. Rashid. I am not certainly an expert in this.
    Mr. Issa. Nor are we; we just got elected to do it. 
    Mr. Rashid. I do believe that every project has to be 
absolutely independently verified. What happens in projects, 
the way they are sold both to local politicians and to the 
public is by creating studies that ignore most of the 
information that is relevant to the project. I would insist 
that in doing, in creating these studies and providing this 
analysis, that it be done independently, that it be verified 
independently and that alternative uses for moneys for these 
projects be a part of whatever study is done, and that is not 
    I also think that the campaigns that are used to sell these 
projects have to be looked at carefully. There is almost a need 
for some kind of campaign finance reform at the local level in 
the way that those projects and those campaigns are funded.
    Mr. Kucinich. Would the gentleman yield?
    Mr. Issa. I would be happy to yield to the chairman.
    Mr. Kucinich. The witness raised a point which I think may 
be worth the committee looking at as a followup, and that is 
the campaigns to pass these issues. What do they promise? It 
might be interesting to collect information from all the cities 
we are hearing from plus others to see how the promises 
correspond to the reality.
    I thank the gentleman.
    Mr. Issa. That is excellent.
    I might mention that we do have two other pieces of 
jurisdiction for the final answers before my time expires. One 
is we do have campaign finance. We could consider that if it 
lobbies for what would ultimately be tax-exempt bonds, that we 
could put it under the Federal limit of $2,300 rather than, in 
some States, unlimited, and that would be our jurisdiction.
    Last but not least, you might remember that we, in the 
previous Congress, had professional sports up here to talk 
about steroids. We do have the jurisdiction, and perhaps the 
chairman would consider having as a followup to this, 
professional sports teams talking about this growing 
competition that makes these projects so expensive because I 
think you have victimized in your local cities in many of the 
things you have said.
    But we also have the concern that there is a race to go 
higher and higher. Are we racing to where your cities will lose 
what you have unless, as you said, ante up another $800 
    I want to leave time for you to answer on any other ideas 
that would help us here on the dais.
    Ms. Hogi. The project should benefit all. As I said, Yankee 
Stadium is an economic dead zone during off season. So I don't 
think my taxes should go to supplement this team that can't 
benefit me year-round.
    Mr. Issa. Thank you.
    Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman. It may be, Mr. Issa, 
that tax-exempt financing for these sports projects may be a 
financial equivalent of steroids.
    So, let us continue. Mr. Tierney, do you have any 
    Mr. Tierney. No, I have no questions, Mr. Chairman. I thank 
the witnesses for testifying and yield back.
    Mr. Kucinich. I thank Mr. Tierney.
    We will all thank the witnesses for their appearances. You 
are now excused, and we will call the second panel forward 
consisting of Brad Humphreys and Dennis Zimmerman.
    [Witnesses sworn.]
    Mr. Kucinich. Let the record show that the witnesses 
answered in the affirmative.
    Dr. Brad Humphreys is an economist who teaches at the 
University of Illinois, Urbana-Champaign. His research 
interests in sports economics include the economic impact of 
professional sports on urban economics. His most recent 
research on the economic impact of professional sports teams is 
entitled, ``Caught Stealing: Debunking the Economic Case for 
D.C. Baseball,'' and this was published by the Cato Institute.
    Mr. Dennis Zimmerman is the director of projects at the 
American Tax Policy Institute. The American Tax Policy 
Institute's primary purpose is to promote and facilitate non-
partisan scholarly research analysis and discussion of U.S. 
Federal, State and local tax policy issues. Formerly, Mr. 
Zimmerman was an analyst with the CRS for 21 years and with the 
CBO, Congressional Budget Office, for 7 years.
    Mr. Zimmerman's published work includes, ``Private Use of 
Tax-Exempt Bonds: Controlling Public Subsidy of Private 
    I want to thank the gentlemen for being here.
    Mr. Humphreys, you may proceed with your testimony.
    I would ask the witnesses to limit your testimony to 5 
minutes. Anything that is not spoken will, of course, be 
included in the complete record of the committee. Thank you.

                        FALLS CHURCH, VA


    Mr. Humphreys. Thank you very much for the opportunity to 
testify here, Chairman Kucinich and other committee members.
    I am an economist who does research on the economic impact 
of professional sports teams and facilities on the local 
economy. I have, in my own research, gone back and looked at 
the economic performance of every city in the United States 
that had a professional football, basketball or baseball 
franchise from 1970 until the present, looking for evidence 
that professional sports are somehow engines of economic 
development in cities, and I have not found any evidence 
whatsoever suggesting that professional sports stadiums create 
jobs, raise income or raise local tax revenues.
    There is no doubt in my mind that professional sports 
stadiums concentrate economic activity in the area approximate 
to those facilities, but we need to look at the entire economy 
of cities and not just what is going on within 2 miles of a 
professional sports stadium. When we look at the entire cities' 
economies, there is just no evidence supporting the idea that 
professional sports facilities are engines of economic growth.
    So, over the last 15 years, we have subsidized construction 
only of professional sports facilities by about $15 billion in 
inflation adjusted terms.
    Why do we continue to subsidize that construction with 
Government money? Well, it is undeniable that professional 
sports provide some non-economic benefits to communities: a 
sense of community, world class city status, these sorts of 
things. We hear this all the time, and that is important. It 
might be that could justify our subsidies, but I want to point 
out that the evidence of economic benefit is just not there.
    There is a second reason that we might still continue to 
subsidize professional sports facility construction, and that 
is the subsidies are the product of a long negotiation between 
a number of people: taxpayers, local politicians, the teams, 
people like that. We have the Congress, by extending special 
anti-trust status to professional sports leagues, has given the 
team owners the upper hand in that process. A team owner can 
always threaten to leave for another market which is there 
because sports leagues have this anti-trust protection that 
you, the Congress, have given them.
    I urge you to think about and consider carefully whether or 
not we should extend this anti-trust protection to sports 
leagues so that they can extract these subsidies from local 
governments because I think this is a root cause of a lot of 
these problems of subsidizing sports facilities that don't 
provide economic benefits.
    I also want to point out for people who are trying to 
decide on these subsidies, that there are two types of evidence 
that we have about what the economic impact of professional 
sports facilities are. One are these promotional studies or 
economic impact studies that are generates by proponents of 
these subsidies, and they typically find huge economic 
benefits. This other type of evidence that we have is 
scholarly, peer-reviewed academic research, the kind that I do.
    Often in the court of public opinion, these two types of 
evidence are treated equally, and I would argue that is a very 
bad public policy idea, to treat them equally.
    One of the previous panelists said that we need to have 
independent oversight to see if these benefits ever turn up. 
That is what peer-reviewed academic research is. It goes 
through the peer review process.
    We don't make policy about drugs and things like that just 
based on what pharmaceutical companies say. We have research 
that is peer-reviewed, that tells us about those things. We 
should have the same sort of standards when we are considering 
whether or not there is economic benefit to be gained from 
professional sports.
    [The prepared statement of Mr. Humphreys follows:]

    Mr. Kucinich. Thank you very much, Mr. Humphreys.
    Mr. Zimmerman.


    Mr. Zimmerman. Mr. Chairman, ranking member and members, 
thank you for this opportunity to appear before the committee. 
I have submitted written testimony for the record.
    Professional sports stadiums have been subjected to three 
different sets of tax-exempt bond rules since 1968. Until 1968, 
most stadiums were financed with tax-exempt industrial 
development bonds, with debt service paid primarily from 
stadium related revenue even though they also could be financed 
with governmental bonds whose debt service was paid by local 
    In 1986, stadiums were removed from the list of private 
activities that could use industrial development bonds which 
the 1986 act renamed private activity bonds. Since local 
taxpayers were expected to be reluctant to use general 
obligation debt to pay for stadium debt service, stadium bonds 
would wither. Unfortunately, that expectation was overwhelmed 
by the combination of the monopoly power of professional sports 
leagues that maintains excess demand for franchises and stadium 
proponents' use of pseudo-economic studies showing that 
stadiums pay for themselves.
    Then in 2006, the Internal Revenue Service issued a letter 
ruling that effectively restores private activity bond 
financing of stadiums. It reclassified stadium-related revenue 
as general taxes called payments in lieu of taxes, PILOTs, 
converting private activity bonds into governmental bonds.
    Whether the PILOT ruling is good or bad policy depends on 
the policy goal one is trying to achieve. If the goal is to 
eliminate Federal subsidy of professional sports stadiums, it 
is poor policy. Local taxpayer resistance to publicly financed 
stadiums is reduced because PILOTs substitute stadium-related 
revenue for general taxes paid by local taxpayers.
    Even worse, renaming business-related revenue as PILOTs 
might open the door for widespread tax-exempt governmental bond 
financing of private investment projects not currently eligible 
for private activity bond financing. It invites local elected 
officials to become commercial bankers.
    Senator Daniel Moynihan tried to eliminate tax-exempt 
stadium financing more directly in 1996 with the Stop Tax-
Exempt Arena Debt Issuance Act [STADIA]. If the 10 percent 
security interest test for stadiums is eliminated, in other 
words, wiped off the books, professional sports stadiums would 
always be classified as taxable private activity bonds because 
they use more than 10 percent of the bond proceeds. Such a 
prohibition is also good economic policy because the Federal 
taxpayer receives no benefit from a bond-financed stadium.
    The budget's effect on jobs and tax revenue is determined 
by the budget resolution. What that money is spent on makes 
little difference unless it is for a spending program that 
reduces the natural rate of unemployment such as job training. 
These taxes and bonds do not accomplish that objective.
    In contrast to eliminating the Federal subsidy, one's 
objective might be to implement the benefit principle of 
taxation that requires those who receive the benefit to pay its 
cost. PILOTs might be beneficial. PILOTs would allow stadium-
related revenue to be used to be pay debt service and would 
reduce the pressure to finance stadiums with general revenue. 
Stadium-related revenue is generally paid by those receiving 
direct benefits from the stadiums where as general taxes such 
as income, property and sales taxes are poorly related to 
stadium usage and receipt of benefits. The costs and benefits 
of the dominant political coalition that promotes the stadium 
would be better balanced, thereby rationalizing prices and 
reducing over-investment.
    But the PILOT policy has a problem. As mentioned above, it 
might lead to a significant conversion of taxable private 
activity bonds and to tax-exempt Government bonds, therefore 
increasing revenue loss.
    A three step compromise is available that could advance 
both policy objectives.
    First, add stadiums to the list of private activities 
eligible for tax-exempt financing. That would encourage local 
governments to use the benefit principle of taxation to finance 
the stadiums.
    Second, subject stadium bonds to the private activity bond 
volume cap. That would require stadium projects to compete for 
scarce volume cap with other eligible private activities such 
as mortgage revenue bonds and would minimize the Federal 
revenue loss.
    Third, wipe the PILOT precedent off the books. That would 
prevent its indiscriminate application to a broad range of 
private activities and control elected officials' role of 
commercial banker.
    Thank you.
    [The prepared statement of Mr. Zimmerman follows:]
    Mr. Kucinich. I thank Mr. Zimmerman.
    We are going to go to questions in the second, and at the 
conclusion of that, we will go to the third panel of the 
Internal Revenue Service.
    Dennis Zimmerman, you are a former Congressional Research 
Service and CBO analyst, is that correct?
    Mr. Zimmerman. Correct.
    Mr. Kucinich. In your opinion, what is the public purpose 
fulfilled by tax-exempt financing of the construction of Yankee 
    Mr. Zimmerman. Well, if you go by the structure of the bond 
rules prior to the PILOT, it would not have been allowed. In 
general, since these things provide no Federal benefit, no 
benefit to Federal taxpayers, it is not clear why one would 
want to subsidize these things.
    Mr. Kucinich. So are you saying then that it is 
inconsistent with the law's treatment of public financing for 
sports stadiums?
    Mr. Zimmerman. Yes, prior to the PILOTs act, they would 
have been classified as private activity bonds which would have 
been taxable.
    Mr. Kucinich. Mr. Zimmerman, has the IRS in its rulings for 
the Yankees and the Mets adhered to the meaning and intent of 
the law?
    Mr. Zimmerman. The meaning and intent of the law is sort of 
in the eye of the beholder frequently. As I read the law, prior 
to the PILOTs ruling, it is not consistent. These would have 
been counted as stadium-related revenues, they would have 
violated the 10 percent rule, and they would have not have been 
eligible for tax-exempt status.
    Mr. Kucinich. Now in your testimony, you assert that the 
IRS proposed rulemaking, which will be discussed in our next 
panel, creates a way around the restriction on tax-exempt 
private activity bonds for use in sports stadium construction, 
is that right?
    Mr. Zimmerman. Correct.
    Mr. Kucinich. So, in your opinion, how would you 
characterize the impact of the IRS rulemaking on the 1986 law 
with respect to public financing of sports stadium 
    Mr. Zimmerman. It circumvents what the 1986 tax act rules 
say because it reclassifies stadium-related revenue which 
clearly should be counted against the 10 percent security 
interest test. It reclassified it as generally applicable taxes 
and converted these things from private activity bonds which 
are taxable into governmental bonds which are tax-exempt.
    Mr. Kucinich. I thank Mr. Zimmerman.
    Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    I would like to followup on each of your opening 
    Dr. Humphreys, I am a little confused on one thing. Your 
testimony was that this is sort of a zero sum game, that if it 
wasn't spent in the downtown area in San Diego, Washington, 
Detroit, Chicago, wherever, it would be spent in the suburbs. 
Isn't that the nature of redevelopment though? Isn't that what 
center city projects do?
    I am a Clevelander, the same as the chairman. Isn't it, in 
fact, the problem in Cleveland is my brother in Shaker Heights, 
he is doing a little better, and by the time you get to 
Beechwood, they are doing just fine while Cleveland itself, a 
great city, has a constant problem of converting from the river 
and lakefront of the steel and coal era into a desirable place?
    Why in the world, economically, wouldn't you consider that 
shifting from, if you will, the place where there is plenty of 
money to the place where there isn't enough money and as a 
result not enough money to run the Cleveland City Schools as an 
economic benefit and give full credit to that, not saying that 
it changes your model in any way except how can you not give 
credit for that shift?
    Mr. Humphreys. Well, I don't understand why we should spend 
hundreds of millions of dollars to subsidize a downtown 
business to attract entertainment spending. Why is it that a 
business owner somewhere in the suburbs, who is losing 
customers, shouldn't be extremely upset at us using public 
dollars to subsidize a competitor for him to move that business 
    I mean I think that long run economic growth is related to 
fundamental factors like worker productivity and education and 
things like that.
    Mr. Issa. OK, I get it. You like the macro, and I like the 
micro. It is tomato-tomato. I guess I have a difference of 
opinion, having been to Jacobs Field, having been to the Rock 
and Roll Hall of Fame and so on, that it is worth for the 
overall benefit of the city not to have a blighted area, crime-
ridden, with kids who don't have enough money to go to school, 
but maybe I am wrong on some of these counts.
    Mr. Zimmerman, coming over to you.
    Mr. Zimmerman. Could I comment on the question?
    Mr. Issa. Please, in my limited time, I would love to hear.
    Mr. Zimmerman. OK, the one other aspect of this, of the 
question is I can see why one can conceive of that as being a 
benefit for the local and maybe the State taxpayers. It is not 
clear to me why that is a benefit to the Federal taxpayers.
    Mr. Issa. No, no. I understand.
    Mr. Zimmerman. And therefore why the interest in subsidies.
    Mr. Issa. Thank you, and that follows up on what I was 
going to ask you.
    You have held this opinion since at least 1986 when you 
testified before Congress. So this opinion that you gave us 
here today is not new. This has been consistent since when you 
testified in 1986 when Congress removed stadiums from the list 
of activities, and that is good because it is nice once in a 
while to have people who don't change their opinions from one 
election to another, not that this would happen in this town.
    But I have to get back to in your opinion, spreading it 
beyond baseball, I figured we would take on apple pie, baseball 
and mother. We should shift to a broader arena. Museums or how 
about the Cleveland Symphony, should it enjoy any tax benefits 
such as the fact that contributions to the symphony are tax-
exempt or tax free? They are donations.
    Now that is where rich people go, right, normally to the 
symphony and the opera and so on?
    Mr. Zimmerman. That is right.
    Mr. Issa. Isn't there, in fact, to a certain extent, when 
you look at the economic hierarchy, if you are going to take 
away stadiums--and I use stadiums as a euphemism for baseball 
or football or sports in general--then don't you have to treat 
equally by taking away the symphony, the museums, the opera?
    Is one culture more valuable to another and isn't your 
stand against stadiums, which are necessary if you are going to 
have professional baseball, inconsistent unless you are also 
calling on elimination of similar treatment for any and all 
redevelopments but particularly if they involve the other 
alternatives to what people would like to do with maybe less 
limited resources?
    Mr. Zimmerman. All these things, of course, have some value 
in terms of intangible benefits. But, no, I don't think they 
are comparable, and they are not comparable because these 
stadiums are private, privately owned business operations.----
    Mr. Issa. OK, well, I want to followup. I am on a yellow. I 
am on a yellow light.
    Mr. Zimmerman [continuing]. Whereas museums and cultural 
opportunities are non-profit organizations.
    Mr. Issa. Well, no. Let me go back again.
    What if a city wants to build a stadium and own it like 
they build a symphony facility and they build museums and own 
them? Now, first of all, a lot of symphonies and museums are 
not publicly owned, but notwithstanding that, is your point 
public ownership versus private or, in fact, when we build 
facilities for other cultural and athletic and other 
activities, don't they all fit into the same gambit?
    If we are going to take on baseball, motherhood and apple 
pie, and I am happy to do it, don't we have to take on all 
levels of these kinds of activities?
    Mr. Zimmerman. No. Again, I think the distinction is in the 
instance where these things are privately owned, then 
essentially what is happening is you are providing windfall 
gains to the owners. That is the example of the Texas Rangers 
stadium. Most of the benefits of the Federal tax subsidy ended 
up increasing the capital value and went into the pockets of 
the owners whereas whether it is a publicly owned symphony or a 
non-profit owned symphony, there are non-distribution 
constraints and unless there is corruption present, the value 
of these Federal tax benefits are not being absorbed into a 
higher rate of return for the private owners.
    Mr. Issa. I guess I missed something at the Who concert the 
other day, but please, Mr. Chairman.
    Mr. Kucinich. The gentleman's time is expired.
    I would just like to interject here, and that is that I 
appreciate the gentleman's interest in the city of Cleveland, 
his home city--we miss you--and that the economy of San Diego 
may be a little bit different than the economy of the city of 
Cleveland where we have the highest poverty level despite 
spending close to $1 billion for these tax supported 
    Mr. Tierney.
    Mr. Tierney. Thank you. I was a little amused to listen to 
my colleague, Mr. Issa, make a great argument for the 
redistribution of wealth from the suburb into the urban area 
which was sort of interesting.
    Mr. Issa. Would the gentleman join in that with me? You 
know we could work on this together. You just have to take on 
the big structures everywhere on this.
    Mr. Kucinich. You can address your remarks through the 
Chair. Continue.
    Mr. Tierney. Reclaiming my time, I am glad you made the 
distinctions in some of your remarks about the nature of public 
policy for non-profit institutions versus those that are going 
to get private gain from a tax break on the Federal Government. 
Whether or not the city holds the stadium or not, the 
individual that is running the ball teams in there is still 
going to make a considerable profit because it was built. I 
don't know whether that is what we want our public policy to 
lean toward.
    Can I concentrate back? There are two things I want to do. 
I want to talk a little bit about the 10 percent rule. Mr. 
Zimmerman, will you explain that to those that might not fully 
understand every little bit, every little detail?
    Mr. Zimmerman. Right, bonds are taxable or tax-exempt 
depending upon two tests. One is whether more than 10 percent 
of the bond proceeds are used by a private business, and the 
second is whether more than 10 percent of the debt service is 
secured by property used in the trade and business.
    Mr. Tierney. Either one of those things would exclude you 
being able to be exempt?
    Mr. Zimmerman. Right, you have to fail. You have to exceed 
the 10 percent for both of those. So for a stadium, obviously 
more than 10 percent of the bond proceeds are being used by a 
private entity.
    So the question when they cannot be used with private 
activity bonds is can you structure the deal so that no more 
than 10 percent of the debt service is paid for by stadium-
related revenue? That is the property being used in the trade 
or business.
    The 1986 act basically said if you don't satisfy that 10 
percent security interest test, then the only way, then you 
can't issue a stadium bond. So it would have to essentially be 
a governmental bond which forces you to finance it with general 
tax revenues.
    Mr. Tierney. My question, I guess, would be the IRS 
rulemaking letter, was that an interpretation or a change in 
    Mr. Zimmerman. Well, I am not a lawyer. I can only tell you 
what the effect was.
    Mr. Tierney. The effect was to do the reverse of what we 
thought the statute did.
    Mr. Zimmerman. The effect was it converted what, absent the 
PILOTs ruling, would have been considered stadium-related 
revenue, and----
    Mr. Tierney. I don't want to cut into you, but it just 
sounds to me like it was created out of thin air.
    Mr. Zimmerman [continuing]. Therefore would have classified 
it as a taxable private activity bond. It would not have been 
eligible for tax-exempt financing.
    Mr. Tierney. Thank you.
    Would each of you expound a little bit on the monopoly 
issue here, how that affects the situation because both of you 
mentioned it in the course of your remarks?
    What I think is important to note is what about the anti-
trust issue on this, how would that change things? Do you think 
it is wise to continue the anti-trust exemptions and how might 
we change them and what would be the effect if we did?
    Mr. Humphreys. Well, the effect of the anti-trust ruling is 
that leagues restrict the number of franchises that there are. 
I mean ask Ms. Watson why there is no NFL franchise in Los 
Angeles. The reason is that they are operating as a monopoly or 
a cartel and they want to keep that market open so that if 
another team wants to threaten to move if they don't get a new 
stadium built, then they have that option to move. So that is 
    Why are they allowed to do that? Well, because they enjoy 
some anti-trust protection.
    If that was removed, there would be an NFL franchise in Los 
Angeles instantaneously almost because it is clearly going to 
support an NFL franchise. So this just gives. As team owners 
and local politicians bargain over subsidies, it gives the 
owners the ultimate threat and the ultimate power in the 
process, and that is how they get the subsidies as I see it. So 
I don't know.
    Mr. Zimmerman. Effectively, when you have a monopoly, you 
maintain excess demand, and it is that excess demand which 
creates the need for local governments to compete to get 
    Mr. Tierney. Can either of you make a case?
    Mr. Zimmerman. And how do they compete? They compete with 
larger and larger subsidies of the capital costs of the 
    Mr. Tierney. Can either of you make a case for continuing 
the anti-trust exemptions?
    OK, I yield back, Mr. Chairman.
    Mr. Kucinich. I thank Mr. Tierney.
    Mr. Turner.
    Mr. Turner. Thank you. Thank you, Mr. Chairman, for holding 
this hearing. I greatly appreciate your look into this issue, 
having shared with you the background of having been a former 
mayor and having been a mayor at a time when our city undertook 
the construction of a Minor League Baseball stadium which had a 
huge effect on transforming out downtown.
    Mr. Chairman, as you know, so many times because of our 
background, we agree upon the issues that are identified but 
not necessarily on the specific resolution of those issues.
    I want to thank you for panel one because the most 
important thing that we have in local government are people who 
get involved and who are activists to hold Government 
accountable and to look at where their taxpayer funds are going 
and what the direction and the vision of the community should 
be. It is not always that we will all agree, but if we don't 
have people at the table who are willing to dive into the facts 
and the details and hold the community accountable for what 
they are undertaking, you can get bad deals.
    What is interesting in the information that we have today 
is clearly there are some bad deals in stadiums--I have seen 
them in our State--and there are also some really good deals.
    We had a really good deal in our community because we 
capped our exposure and liability so the taxpayers had a limit 
at the amount that they were investing in the stadium. Cost 
overruns were to the team. Management of the construction was 
to the team. When we entered into it as a community, we knew 
exactly what the subsidy was going to be and what we expected 
the result of economic development in the area would also be.
    Now, on the second panel, there are a couple of things that 
you have said that I find very interesting. One is your 
description of a monopoly with respect to anti-trust laws 
because what have you just stated is actually what I believe is 
backward from the economic model is in monopoly. You say that 
we should get rid of the anti-trust exemption because they are 
maintaining excess demand and making local governments compete.
    Well, the reality is if we took off the anti-trust 
exemption, you wouldn't have less stadiums. You would have more 
stadiums and more teams and more communities endeavoring to do 
it. So it would have the exact reverse impact of what you are 
arguing. You would have more communities having access to teams 
and seeking to undertake construction of teams for their 
    Second, the issue of looking at the stadiums as an amenity 
and the statement that has been made of a consensory conclusion 
that has emerged from peer-reviewed literature, except for the 
fact that the externalities that are not currently qualified 
and that appears that residential property values may be higher 
in cities with sports teams, but the conclusion starts with 
there is a consensus that they are not an engine of economic 
    There is a significant amount of peer literature that does 
show that the amenities that a community has significantly 
impact economic development. Richard Florida, who, as you know, 
is the author of The Creative Class, goes into an incredible 
analysis. In one article entitled, ``The Economic Geography of 
Talent,'' he actually correlates a community's success based 
upon their ability to attract a highly educated, highly 
skilled, highly qualified, competitive work force to the 
amenities in the community and indicates that the success level 
of a community is based upon the amenities that are provided 
and being able to attract people who have degrees and young 
    Interestingly enough, he has a little graph here that says 
Coolness Index, and it says Pittsburgh, Seattle, Atlanta, 
Denver, San Francisco, Boston, Chicago, Los Angeles, all of 
which, I think we could all in this room name their teams.
    As an indication, it goes on to say that median housing 
values are higher in those communities that have these 
amenities where there is a coolness associated with attracting 
new talent, an item that Dr. Humphreys, you indicated that it 
appears that residential properties values may be higher in 
cities with sports teams.
    I think it is very important that we distinguish a broad 
policy such as do we provide a tax benefit to stadium 
construction? Do we provide it, as Mr. Issa said, to other 
amenities and activities of a community as a holistic approach 
to regional economic development?
    It is not suburbs versus urban because the reality is the 
stadium is an economic engine for suburbs also. You have no 
suburbs that exist without an urban core. It doesn't happen. So 
you have to have a regional approach to what are the amenities 
you are going to have in a community, how you are going to use 
public funds for those, and that is a local government 
discussion and a local government distinction.
    My question for both of you is to go back to the issue that 
Mr. Issa had raised of if you are going to say that stadiums.
    Mr. Kucinich. The gentleman's time is expired.
    Mr. Turner. Can I finish my question, Mr. Chairman? It is a 
quick question.
    Mr. Kucinich. I will agree to that, but your time is 
expired. Go ahead.
    Mr. Turner. Thank you.
    If you are going to have a policy where you look at 
stadiums only as being subsidized by the taxpayers, don't you 
have to put on the board all of the amenities that are used by 
other for profits such as rock concerts and other types of 
venues that are considered amenities that tend to attract that 
type of spirit or life that a city points to for its identity?
    Mr. Kucinich. You can make your answers very brief.
    Mr. Humphreys. I don't understand the question very well 
actually. We should consider? We should consider rock concerts 
as amenities and subsidization?
    Mr. Turner. You have to have a venue, and certainly you are 
not saying that the music community must sustain construction 
of its own venue and/or they should not come into a community 
and host an event.
    Mr. Humphreys. And where does it end? So we have to have 
restaurants too. Do we need to subsidize what restaurant 
construction and other amenities like that? I mean some of 
those things are privately provided goods. If we are talking 
about subsidies, why is it that we should, you know, I don't 
know where that list of things ends.
    Apparently, you are in favor of subsidization of all sorts 
of construction projects.
    Mr. Turner. My point is should we include them all if we 
are going to pick on one?
    Mr. Humphreys. No.
    Mr. Kucinich. The gentleman's time is expired.
    [The prepared statement of Hon. Michael R. Turner follows:]
    Mr. Kucinich. I want to thank this panel for their 
    We are going to move to the third panel, the IRS. 
Testifying will be Donald Korb, the Chief Counsel of the 
Internal Revenue Service.
    This is kind of a Cleveland reunion because Mr. Korb is a 
former Cleveland area resident, a graduate of Brush High. We 
are very proud of your success and your presence here.
    But let us move quickly. I would ask, Mr. Korb, if you 
would remain standing.
    [Witness sworn.]
    Mr. Kucinich. Let the record show that the witness 
responded in the affirmative.
    Mr. Korb, you may proceed.

                    SERVICE, WASHINGTON, DC

    Mr. Korb. Thank you, Mr. Chairman, Ranking Member Issa, 
other members of the subcommittee.
    I would suggest we had this hearing in the wrong place. We 
probably should have held this hearing in Cleveland, so next 
time we get together.
    Mr. Kucinich. We may have a followup, but for now we are in 
Washington, and we are so happy to have you here.
    Mr. Korb. Mr. Chairman, I appreciate the courtesy of 
letting me speak now and also the conversation we had the other 
day on the timing.
    Mr. Kucinich. We understand your time constraints. You may 
    Mr. Korb. I very much appreciate it.
    I am the Chief Counsel for the Internal Revenue Service, 
and the Chief Counsel is the legal advisor to the Commissioner 
of the IRS on all matters pertaining to the interpretation, 
administration and enforcement of the tax law.
    Before discussing some of the specific issues that are the 
focus of this hearing, it is important for me to emphasize that 
although the Office of Chief Counsel assists and advises the 
IRS in administering our Nation's tax system, neither our 
office nor the IRS itself develops proposals on tax policy or 
takes a position as part of the legislative process. Questions 
on tax policy issues are better addressed to the Secretary of 
the Treasury or the Assistant Secretary for Tax Policy in the 
Treasury Department.
    In the tax policy area, our role is limited to advising on 
administrative issues that may arise from proposed tax 
    Now, let me turn to the subject of this hearing. The 
Internal Revenue Code provides an exclusion from income for 
interest paid on bonds issued by the State and local 
governments. Tax-exempt bond financing plays an important role 
as a source of financing to State and local governments for 
public infrastructure and other significant public projects. In 
essence, the interest income exclusion provides a Federal 
subsidy to enable State and local governments to obtain low 
cost financing for traditional governmental functions such as 
schools, roads, libraries and firehouses.
    In addition to these types of projects, the Tax Code also 
permits State and local governments to use tax-exempt financing 
to subsidize certain activities of private businesses. Here 
again, the State and local government may have a valid 
governmental purpose for providing this subsidy. However, over 
time, Congress has put limits on State and local governments 
subsidizing private business activities with tax-exempt bonds.
    Currently, a bond that subsidizes a private business may 
not benefit from the tax-exemption unless the proceeds of the 
bond are used for certain specified purposes, and if you look 
on page 3 and 4 of my written testimony, you will see the list 
    As we have discussed this morning, there are two basic 
types of tax-exempt bonds, what we call governmental bonds and 
what are called private activity bonds. Bonds are classified as 
governmental bonds if the proceeds are used to carry out 
governmental purposes and the bonds are repaid from 
governmental funds. On the other hand, bonds are classified as 
private activity bonds if, for example, the bond-financed 
facility is to be used entirely by private parties and the debt 
service on the bonds is paid from private sources.
    The current private activity bond regime was enacted as 
part of the tax reform of 1986 as discussed earlier and was 
designed to limit the ability of State and local governments to 
act as conduit issuers in financing projects for the use and 
benefit of private businesses.
    Now, prior to the tax reform of 1986, as you know, stadiums 
and convention centers were listed as eligible facilities that 
could be financed with tax-exempt private activity bonds. In 
1986, however, Congress eliminated these projects from the list 
and, at the same time, tightened the private activity bond 
tests across the board. This means, as discussed this morning, 
under current law, bonds that finance stadiums and convention 
centers now must be governmental bonds to be tax-exempt.
    Consequently, if a State and local government wants to 
issue tax-exempt governmental bonds to finance a stadium that a 
professional sports team would use, it can do so provided that 
the issuer, the State or local government, receives no private 
payments from the team or other private parties for use of the 
stadium that in the aggregate exceeds generally 10 percent of 
the bonds, of the debt service on the bonds.
    Therefore, even if the bonds finance a project that is 100 
percent used for private business use, that private business 
use will not cause the bonds to be private activity bonds so 
long as the issuer pays the debt service on the bonds with 
either its general governmental funds or generally applicable 
taxes, both of which are not treated as private payments.
    So now, let us talk about what we mean by the concept of 
generally applicable taxes. Congress indicated in the 
legislative history of the Tax Reform Act of 1986 that revenues 
from generally applicable taxes should not be treated as 
private payments for the purpose of the private payments test.
    In 1997, the Clinton Treasury Department provided 
regulatory guidance on the definition of what are generally 
applicable taxes for purposes of these tax-exempt bond 
provisions including guidance which treats certain payments in 
lieu of taxes [PILOTs], as, in substance, general taxes. These 
1997 Treasury regulations were based on longstanding general 
Federal income tax principles dating back to the 1970's dealing 
with the deductibility of taxes.
    Those 1997 regulations generally define generally 
applicable taxes as an enforced contribution imposed under the 
taxing power that is imposed and collected for the purpose of 
raising revenue to be used for a governmental purpose. It must 
have a uniform tax rate that is applied equally to everyone in 
the same class subject to the tax and which has a generally 
applicable manner of determination and collection.
    Although taxes must be determined and collected in a 
generally applicable manner, the 1997 Treasury regulations 
permit certain agreements to be made with respect to those 
taxes. An agreement to reduce or limit the amount of taxes 
collected to further a bona fide governmental purpose is such a 
permissible agreement.
    In addition, the 1997 regulations treat PILOTs in the same 
manner as generally applicable taxes. Under the 1997 
regulations, a PILOT is treated as a generally applicable tax 
if the payment is ``commensurate with and not greater than the 
amounts imposed by a statute for a tax of general 
application.'' For example, if the payment is in lieu of a 
property tax on the bond-financed facility, it may not be 
greater in any given year than what the actual property tax 
would be on the property.
    As I previously mentioned, the Tax Reform Act of 1986 
eliminated the ability to finance stadiums and convention 
centers among other facilities with tax-exempt private activity 
bonds. As a result, State and local governments seeking to 
finance stadiums must now issue tax-exempt governmental bonds 
and must subsidize repayment of those bonds from governmental 
sources including the generally applicable taxes. So, in 
layman's terms, this means that a State or local government may 
only issue tax-exempt governmental bonds to finance a stadium 
if it does not require the professional sports team to pay for 
the use of the stadium.
    Very difficult interpretive issues arise, however, when a 
payment purporting to be a generally applicable tax is imposed 
in a customized fashion on a private business use that finances 
bond-financed property. In these cases, the Office of Chief 
Counsel must decide whether a payment is a generally applicable 
tax within the exception from the private payments test or 
instead is more like a lease or other payment which would be an 
impermissible private payment.
    This past July, the Office of Chief Counsel issued two 
favorable Private Letter Rulings for tax-exempt governmental 
bond financings for two stadiums. The facts in these rulings 
involved professional teams that were going to use the 
stadiums, so the private business use was met. The question 
presented in the rulings was whether the payments to be made by 
the teams and to be used for the debt service on the bonds 
would constitute PILOTs treated as generally applicable taxes 
or instead would be treated as private payments.
    Although we had serious concerns about whether the PILOTs 
in those two rulings sufficiently resembled generally 
applicable taxes, we nevertheless concluded that the 1997 
Clinton Treasury Department regulations led to a favorable 
response to the taxpayer. Basically, we felt the 1997 Treasury 
regulations compelled the result.
    But, more importantly, the two Private Letter Rulings 
served to focus our attention on how broadly the 1997 Treasury 
regulations could be interpreted to permit PILOTs to be used to 
pay debt service on tax-exempt bonds in situation where PILOTs 
did not bear an insufficient link to an otherwise generally 
applicable tax.
    To address these concerns, we promptly published proposed 
regulations to provide new rules explaining when PILOTs would 
be considered to be commensurate with generally applicable 
taxes. The basic purpose of these proposed regulations was to 
tighten the standards for PILOTs as generally applicable taxes 
to assure a closer relationship between the eligible PILOT 
payments and the generally applicable taxes. In other words, we 
spotted a flaw in the 1997 Treasury regulations, and we moved 
expeditiously to fix it.
    I want to thank you for the opportunity to appear this 
morning and try to clear up the mis-impression and confusion 
that sounds like it has surrounded this issue. Thank you, Mr. 
    Mr. Kucinich. I want to thank Mr. Korb. Of course, because 
of the complexity of this, we have given you close to 10 
minutes to testify.
    Mr. Korb. And I appreciate that.
    Mr. Kucinich. You are welcome.
    When we come back, we will go to rounds of questions, 
without objection, of 10 minutes each so each member of the 
panel here will have the opportunity to indulge in that 
complexity as well.
    [The prepared statement of Mr. Korb follows:]
    Mr. Kucinich. This committee will be in recess for 10 
minutes, and then we will return. Thank you.
    Mr. Kucinich. The committee will come to order.
    Just an announcement and that is that the full committee 
will require the use of this room, and we will therefore go 
into recess at a quarter after 1. We will come back in at 3. 
This is something that in the flow of business here, we have to 
go with the flow.
    So, again, a quarter after 1, we recess; at 3, we come back 
to this room. I appreciate the cooperation of all the 
witnesses, and I ask that all the witnesses be back here at 3 
including the IRS.
    I am going to question Donald Korb, without objection.
    Mr. Issa. Mr. Chairman, a point of inquiry, the IRS is 
going to have to leave around 1:15. At least, Mr. Korb will. 
When you said IRS, you mean back-up personnel?
    You have to leave right after this?
    Mr. Korb. Unfortunately, I have a meeting that was 
scheduled beginning at 1. I have sent a message back now to 
move it backward. I will do whatever you want, but it will be a 
problem for me.
    Mr. Issa. Mr. Chairman, if we do 10 minutes a side, would 
that be sufficient to conclude with this witness and then pick 
up the new panel at 3?
    Mr. Kucinich. No, it would not.
    Mr. Issa. OK.
    Mr. Kucinich. I think it is important that the gentleman 
remain, and I think as we get into the questions, you will 
understand why it is important from your perspective. I think 
you will want to stay.
    Mr. Korb. OK, whatever you want.
    Mr. Kucinich. I appreciate the gentleman's cooperation.
    I would like to first turn to the subject of Private Letter 
Rulings for the New York Yankees and Mets. The regulations 
existing at the time in 2006 were very specific, that payments 
in lieu of taxes [PILOTs], ``made in consideration for the use 
of property financed with tax-exempt bonds '' were ``special 
charges.'' Special charges are not equivalent to generally 
applicable taxes.
    The Yankees wanted to make these payments in lieu of taxes 
for the use of property, the new Yankee Stadium, which would be 
financed with tax-exempt bonds. As such, in the case of the 
Yankees deal, were the Yankees right to be concerned with tax-
exempt financing of their stadium?
    Were they concerned that the tax-exempt financing of their 
stadium would not be allowed, Mr. Korb?
    Mr. Korb. Excuse me?
    Mr. Kucinich. Were the Yankees right to be concerned that 
the tax-exempt financing of their new stadium would not be 
    Mr. Korb. Well, the Yankees--remember, I didn't personally 
work on the ruling. If you use generally applicable taxes, as I 
testified, right, governmental funds, under the law that was 
passed in 1986, the Yankees, the city--the city owns the 
stadium, I think--could use governmental bonds.
    Mr. Kucinich. If the IRS had not granted the Private Letter 
Ruling, then would the Yankees and the city of New York have 
been compelled to do things significantly differently? Their 
bonds would have to be private activity bonds, isn't that 
    Mr. Korb. Mr. Chairman, you are absolutely right, and that 
is why we moved very quickly to eliminate the loophole created 
in 1987. That is exact. You are exactly right.
    Mr. Kucinich. So if taxable bonds would have been used, 
what would that of done to the cost of building the new 
    Mr. Korb. They could have used taxable bonds--you are 
right--and I assume the interest. I am not a municipal bond 
expert, but I assume the interest would have been higher, yes.
    Mr. Kucinich. But let us review what this Private Letter 
Ruling did. One, it allowed the Yankee Stadium project to avoid 
issuing taxable bonds and, two, it entitled the Yankees to a 
reduced interest rate for construction of a stadium and thereby 
reduced the cost to the Yankees for building a new stadium, 
isn't that right?
    Mr. Korb. Yes. We were following the law as it was written 
in the regulations that were enacted in 1997. We feel compelled 
to follow the rules, and that is why we moved to change them.
    Mr. Kucinich. Is it logical that the Yankees wanted to use 
tax-exempt bonds to retain a greater share of the profits for 
Yankee ownership and that the Private Letter Ruling enables the 
Yankee ownership to keep a greater share of the revenues which 
the Yankees will earn in the new stadium?
    Mr. Korb. Well, you know, I am really not an expert on 
baseball law, so I can't answer that question.
    Mr. Kucinich. In other cases, as our previous witnesses 
have testified, building a new stadium increased the value of a 
team franchise. What does the building of a new stadium do to 
the value of the Yankees and would this not make the owner in a 
more profitable condition?
    Mr. Korb. Again, Mr. Chairman, I am not a baseball 
economist. I am just a tax lawyer, so I don't really feel 
qualified to answer that question.
    Mr. Kucinich. OK, fine. Well, let us go back to the Private 
Letter Ruling which you issued for the Yankees.
    Mr. Korb. Yes.
    Mr. Kucinich. Can you tell the committee the circumstances 
in which you came to learn about the facts of this case?
    Mr. Korb. Well, let us be a little careful here. You will 
    Mr. Kucinich. Excuse me?
    Mr. Korb. No. I am just going to say I have to be a little 
careful with the answers I give here because I am constrained 
by the law. I don't want to be carted off and go to jail here. 
There is a code section called 6103.
    Mr. Kucinich. Well, you are under oath.
    Mr. Korb. I understand. I understand.
    Mr. Kucinich. OK, continue.
    Mr. Korb. But I am trying to explain to you. There is a 
code section called 6103 which prevents me from discussing 
specific taxpayer matters. So I have to be very careful. You 
would not want me to go out on the street and talk about your 
tax affairs with somebody out there. That is why that law 
    So I will have to be, you will have to bear with me. In 
other words, I can't acknowledge that it is the Yankees.
    So if you could restate the question and let me try to 
answer with those legal restrictions in mind.
    Mr. Kucinich. Can you tell this committee if the parties in 
the case met with you or your staff at the IRS?
    Mr. Korb. No one met with me. I do not know about the 
    Mr. Kucinich. Can you tell whether or not? Do you have 
anybody here from staff to say if there was a meeting?
    Mr. Korb. No, but we could answer questions for the record 
on those kind of details.
    Mr. Kucinich. Do you know if any certain representations 
were made by the Yankees in regards to this?
    Mr. Korb. Well, again, well, the way the Private Letter 
Ruling process works, it is not an examination, OK. The way it 
works is somebody comes in with a transaction and tries to get, 
wants to get the IRS to approve it before it is done, OK. You 
don't send out revenue agents to check out the facts. What you 
rely on are the representations under oath, under penalties of 
perjury, by the taxpayers.
    So I am sure in this case there were representations made 
that then our lawyers relied on in giving the Private Letter 
Rulings. That is the way it is done.
    Mr. Kucinich. Is this a form of lobbying?
    Mr. Korb. No, no, no. This is, no.
    Mr. Kucinich. I mean there is no lobbying of the IRS going 
    Mr. Korb. No.
    Mr. Kucinich. No one lobbied you?
    Mr. Korb. No. This is the way the process works.
    Mr. Kucinich. Since the parties felt that they needed a 
Private Letter Ruling, they obviously felt they were doing 
something that was, in some sense, unprecedented, isn't that 
    Mr. Korb. No, that is not true at all. A lot of people come 
in on very routine transactions. It is just when you do a major 
transaction, you want to make sure that you have crossed all 
the Ts and dotted all the Is. So it is very, very common for 
even in the most mundane to fix a problem for us. Because of 
our limited budget resources, we often times try to figure out 
ways where people want to come in.
    Also, keep in mind, the issuer submits a ruling request for 
the bonds. It is not private party. So, in other words, it 
would have been the issuer of the bonds that actually came in 
for the ruling.
    Mr. Kucinich. But they were trying to enable a private 
revenue source to pay debt service on governmental bond in 
excess of the legal limits, isn't that right?
    Mr. Korb. That is exactly why we moved to close, to change 
the regulation.
    Mr. Kucinich. So, in your mind, weren't they asking for 
special treatment from you and you gave them that special 
    Mr. Korb. No, no, that is not true at all.
    I took an oath of office when I came here, and everyone who 
works for me did the same thing, but we swear to follow the 
laws, OK, and the laws are the statutes that you guys pass, the 
regulations. The fact is when you come into office, you are 
bound by the regulations of your predecessors, and we were just 
fortunate, to be honest with you, that this came up so we could 
correct the regs.
    Mr. Kucinich. Could you tell us what is the connection 
between the Private Letter Rulings the IRS did for the Yankees 
and the city of New York in July 2006, and this proposed 
rulemaking that you spoke of published in October?
    Mr. Korb. Oh yes, yes, yes. The timing is they came in, the 
issuer. Remember, I can't talk about specific taxpayers, but 
the issuer came in and sought a Private Letter Ruling on the 
bonds. We, our lawyers dealt with that, felt compelled by the 
regulations that had been enacted in 1997 to give the ruling.
    We immediately decided that we had to take a look at that 
and try to fix it, and so we did. We put out proposed 
regulations that deal with the problem that you are talking 
about here.
    Mr. Kucinich. Mr. Korb, it was the testimony of Mr. Dennis 
Zimmerman that IRS Private Letter Rulings for the Yankees and 
the Mets and its proposed rulemaking pertaining to PILOTs 
violate the intent of the 1986 Tax Reform Act. Now, Mr. 
Zimmerman has some authority in this area. He is the author of 
numerous studies and articles, even a book on tax-exempt 
financing including a legislative history.
    What I want to know for the record is that is your 
testimony today that your Private Letter Rulings for the 
Yankees and the Mets and the subsequent proposed rulemaking are 
consistent with the prohibition on tax-exempt financing for 
sports stadiums?
    Mr. Korb. We felt at the time we issued this ruling, based 
on the regulations that were left behind by the last 
administration, that we had to issue this ruling. We moved 
expeditiously to change that result.
    Mr. Tierney. Would the gentleman yield?
    Mr. Kucinich. Yes, I will yield.
    Mr. Tierney. I am not going to be able to stay around much 
longer, but I would like one clarification if I could, sir.
    It seems that the issue that we might have a question about 
would be the regulation that came out in 1997 or the 
interpretation of that.
    Mr. Korb. You are right.
    Mr. Tierney. I know from your testimony that came during 
the Clinton administration because I heard you say it 74 times, 
and I thought that was interesting because I don't really care 
if it came under the Eisenhower administration and I suspect 
that nobody up here does.
    So that is where I think we want to focus. That regulatory 
issue right there, you felt or your people felt it required 
them to come to the conclusion that was reached.
    Mr. Korb. We felt compelled. We felt our hands were tied.
    Mr. Tierney. Can I just ask in your legal interpretation, 
was there any prospect that there was room for interpretation 
of that regulation?
    Mr. Korb. We wouldn't be sitting here today. We felt 
    Mr. Tierney. OK.
    Mr. Kucinich. Reclaiming my time, Mr. Korb, the committee 
has received a memo this morning from the Congressional 
Research Service on the public purpose of sports stadiums for 
purpose of the private activity bond security test. I would 
like to direct committee staff to distribute the memo to the 
members of this committee and give a copy of the memo to Mr. 
Korb and his staff.
    As they are distributing it, I would like to read from this 
memo, Mr. Korb, starting on page 3: ``To satisfy part (ii), the 
requirement that PILOTs are designated for public purpose, the 
PLRs''--which you issued for the Yankees and the Mets--``rely 
on the stated purpose that the payments are for `economic 
development and recreational opportunities in the City' that 
would be generated by using these PILOTs to retire the bonds 
used to build professional sports stadiums.''
    ``Aside from the extensive academic literature maintaining 
that stadiums do not generate economic development, commentors 
might challenge the implicit expansion of `public purpose' to 
include not only the facility itself but any activity 
indirectly associated with the facility. An argument might be 
made that the conclusions in the PLRs are at odds with the 
intent of Congress to rein in the expanding use of tax-exempt 
bonds for private activities.''
    ``Enacted tax-exempt bond legislation culminating in the 
1986 Act, have sought to curb the use of federally subsidized 
public debt for what would otherwise be considered private 
    Now, let me remind you, Mr. Korb, that building sports 
stadiums was specifically removed from the list of eligible 
    A little bit further on page 3, CRS makes the additional 
point that taxpayer bond financing for sports stadiums and 
private parking garages to serve those sports stadiums 
represent what economists call an opportunity cost meaning that 
the money could have been used for alternative purposes that 
are of greater public benefit.
    What this says is ``The inefficient allocation of capital 
contention arises from the economic finding that additional 
investment in tax-favored private activities''--I might add, 
such as building a sports stadium and parking garages--``will 
necessarily come from investment in other public projects. For 
example, if bonds issued for mass commuting facilities did not 
receive special tax treatment, the bond funds could be used for 
other government projects such as schools or other public 
    Mr. Korb, I think that this memo raises questions as to 
whether the IRS complied with the intent of the 1986 Tax Reform 
Act in awarding tax-exempt bonds for sports stadium 
construction and whether the IRS has, through this decision, 
frustrated other public purposes from being achieved, namely 
school construction and other public infrastructure.
    Mr. Korb. Is that a question?
    Mr. Kucinich. Yes. Do you have any comment?
    Mr. Korb. Oh, the comment would be that I don't see the 
regulations cited in here in what you just read.
    There was a very interesting question, I think Congressman 
Tierney asked that I thought was very perceptive. Is this an 
interpretation of the law or is it the law itself? That goes to 
what the chairman, you, just talked about. There could be 
varying interpretations.
    Our lawyers who are well meaning, public spirited people, 
who serve us at a great personal sacrifice in terms of 
compensation, reached that conclusion, OK.
    Mr. Kucinich. My time is expired. I am going to go to the 
    Mr. Issa.
    Mr. Issa. I am going to pick right up on the same subject. 
I think it is a good one.
    Private Letters are simply insurance policies that your 
interpretation and their interpretation is the same thing? Is 
that roughly right?
    Mr. Korb. Yes, because it avoids a controversy later on 
down the road.
    Mr. Issa. Right. It is only different in that it is a legal 
opinion from a Government agency rather than your accountants 
or lawyers telling you this is OK but then saying we can't 
guarantee the IRS. This brings the IRS in.
    Mr. Korb. That is right.
    Mr. Issa. When you are dealing with hundreds of millions of 
dollars of the people's money in the case of New York City, 
this is prudent on both sides, right?
    Mr. Korb. Yes.
    Mr. Issa. Who owns, who will own the new New York Yankee 
Stadium when it is completed?
    Mr. Korb. You know, I don't know if I answered. The city of 
New York will.
    Mr. Issa. OK, the city of New York is going to sell off 
their old stadium. They are buying a new stadium. You 
inherited, from a combination of Reagan and Clinton, a rather 
bizarre set of laws that says if you pay for the whole thing 
out of the city's coffers, it is OK. It is only if you want to 
collect revenue from that entity, that it is a problem because 
of this 10 percent rule.
    The fact is they could build a stadium; collect nothing and 
just let somebody play in it--one day, a Minor League team; 1 
day, a high school team; and the next day, the New York 
Yankees--and they could pay for everything and it would be OK 
under Federal law, right?
    Mr. Korb. That is exact. That is exactly what they did in 
    Mr. Issa. So, in 1986, and I always think of President 
Reagan fondly because he lowered taxes but did revenue 
enhancement. This law was intended to be a revenue enhancement. 
It tended to tighten up a little bit.
    Mr. Korb. The 1986 law took a series of project off the 
list. You are exactly right.
    Mr. Issa. Revenue enhancement; now, without a new act of 
Congress, in 1997, the Clinton administration, and this is a 
partisan body so I will use it more freely than you would. The 
Clinton administration, which had done the largest tax increase 
in American history, passed through a ruling which I understand 
had public hearings. They passed something that loosened this 
or at least created the opportunity for smart lawyers and 
accountants to take advantage of this loosening, is that 
correct, roughly?
    Mr. Korb. Well, you are right. It is an interesting story 
because in 1994 when the regulation was proposed is very 
similar to now what we are proposing to do. So, in other words, 
it was originally proposed as a tough rule. For whatever 
reason, in 1997, they made it a lenient rule, and now we are 
trying to bring it back where we believe it belongs.
    Mr. Issa. Mistakes get made, and I appreciate the fact that 
you have acted quickly when you discovered it.
    But I want to go back because the chairman's effort here, 
rightfully so, is we are looking at cities, decaying cities, 
problems in getting people to cities and the wealth and 
education and capability of cities.
    Let me run through some quick questions for you, and I 
realize that you are not the economist that we had up here 
earlier, but the fact is that if that stadium had been built 
with post-tax rather than pre-tax money, so to speak, it would 
have cost more to do. The city would have ended up with a 
higher total cost if they chose to build it anyway.
    Mr. Korb. Well, again, I am not a sports economist or a 
municipal bond expert, but I think I did respond to a question 
from the chairman that probably would be true.
    Mr. Issa. Right, so the city who is the owner----
    Mr. Korb. Right.
    Mr. Issa [continuing]. Ultimately takes advantage of a 
lower cost of ownership on the replacement for a stadium which 
was built before anyone on the days was born. Babe Ruth may 
have built it, but he built it a long time ago.
    OK, so this is a loophole somewhat created in 1997, not 
intentionally perhaps but created that in your rulemaking, you 
are trying to close it again, but the bottom line is it did 
save the city of New York money. It serves that purpose.
    We can all have an argument about whether baseball or 
museums or anything else are good, but the law as it was 
written in 1986 and not changed in 1997 allows cities to do 
something like the Big Dig. You can spend as much money as you 
want, and if you are just using general revenue, you can keep 
spending until you run out of money, and it is all bond tax 
deductible, right?
    Mr. Korb. That is exactly right.
    Mr. Issa. We are trying to understand the flaws in the 
system, and that seems to be one of the flaws, that if it is a 
revenue bond, as we used to know them, then it is limited in 
its tax deduction, but if it is going to just be the Big Dig, 
so to speak, it is OK.
    Mr. Kucinich. Excuse me, Mr. Issa. I apologize for 
interrupting you. I have just been notified by the chairman of 
the committee that they are requesting the use of this room 
    Mr. Issa. Our rent is not paid in full yet.
    Mr. Kucinich. I don't know. We probably would have 
benefited from a tax-exempt approach, but I will stay this.
    Mr. Issa. Wouldn't we all?
    Mr. Kucinich. Excuse me, Mr. Korb.
    So what I would like to do is to continue at 3 with your 
questioning and to provide you with an additional minute for 
this exchange here.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Kucinich. This committee is in recess until 3, and 
thank you very much.
    Mr. Kucinich. The committee will come to order.
    Before we begin, I want to thank all the witnesses who have 
been very patient with their time. The Congress is in kind of a 
wind-up session here before break, so it is required that we go 
to the floor for votes.
    Now that we are back here, we have had some intervening 
matters that I want to call to the attention of the committee, 
and I am going to ask Mr. Korb if he would be so patient as to 
indulge us one more time.
    At the request of Mr. Turner, we ask unanimous consent that 
Mr. Murphy be permitted to speak out of order for a period of 5 
minutes and 5 minutes only, at which time we would revert 
immediately back to Mr. Korb. If I have the concurrence of the 
members of the committee, then at Mr. Turner's request we will 
    Mr. Korb, thank you for your patience.
    Mr. Murphy, if you would like to come forward? I would ask 
you to be sworn.
    [Witness sworn.]
    Mr. Kucinich. Let the record show that the witness has 
answered in the affirmative.
    I would ask, Mr. Turner, do you want to introduce Mr. 
Murphy briefly?
    Mr. Turner. Mr. Chairman, I greatly appreciate that.
    Mr. Kucinich. He could go into this 5 minute testimony.
    Mr. Turner. Thank you.
    Mr. Murphy has a plane to catch, and that is why I 
appreciate the chairman's accommodation here.
    As the chairman is aware, in Dayton where I was mayor, we 
built a Minor League Baseball stadium. Mandalay Entertainment, 
of which Bob is the president for the Dayton Dragons, has been 
a great experience for us. We know certainly some communities 
have had difficulty. We have had a good experience, and Bob is 
going to tell us something about that experience and what we 
have seen in our community from the transaction that we put 
together which was a regional package.
    So, with that, it is my privilege to introduce Mr. Murphy.
    Mr. Kucinich. Thank you very much, Mr. Turner.
    Mr. Murphy, you may proceed, and it would be very important 
for you to draw that mic a little bit closer so we can hear 


    Mr. Murphy. Thank you very much.
    Thank you very much for this opportunity to be here today 
to share with you the story about a partnership that has been 
and continues to be an amazing success. This partnership exists 
between a Single A baseball team, the Dayton Dragons, and the 
city of Dayton. This amazing success story demonstrates that a 
city with the proper tools and an engaged partner and with the 
right economic deal can create something that can not only be a 
benefit to a community. It can be a force that can change the 
community forever.
    Our Congressman, Mike Turner, was mayor at the time and was 
very involved in this entire project.
    In 1998-1999, the city of Dayton was at a crossroads. The 
city was in decline. There was an overwhelming public 
perception that downtown was dead and that the hub of the 
region was no longer a viable city. The prevailing opinion of 
the entire region was that people would not come downtown and, 
in fact, had not been downtown for 20 years and that there was 
nothing that would get them to do so.
    People believed crime was everywhere. Streets were 
impossible to navigate. Parking was an impossible situation. 
That was the view of downtown. That view got worse when you 
looked to the future site of Fifth Third Field, the home of the 
Dayton Dragons--deserted lots, deserted buildings, knocked down 
factories, graffiti and garbage everyone. It was a classic 
brownfield situation.
    The city made a decision to fight. They believed that Minor 
League Baseball would make a difference. They also believed 
that Mandalay Sports Entertainment was the partner that they 
needed to succeed.
    The city of Dayton under the leadership of then Mayor Mike 
Turner and Mandalay Sports Entertainment reached an agreement 
that the cost to the city for this project would be capped. 
There would be no risk for the city on construction costs. 
Mandalay would contribute $4 million to the project. Mandalay 
would also capitalized the stadium to a minimum of $1.5 
million, having an equity stake of $5.5 million.
    Mandalay would assume all construction cost overruns. 
Mandalay would be responsible for repair and maintenance and 
utilities for the entire 20 year term of this agreement. In 
summary, the city would make a known investment with no risk of 
exceeding the agreed upon level of investment.
    What has the city of Dayton accomplished? The Dayton 
Dragons have created jobs in the city of Dayton. Other 
companies benefit economically from Dayton baseball including 
cleaning companies, electrical companies, transportation 
companies, hotels, printing companies, office suppliers, food 
suppliers and a whole host of others. Since 2001, the number of 
market rate housing units almost doubled from 485 units to 929.
    Dayton baseball has had the intended impact of being a 
stimulant for economic development in and around the area. 
Bars, restaurants, markets and building renovations have all 
occurred. WorkflowOne, a $1 billion company with 500 employees, 
located its headquarters adjacent to the baseball stadium due 
to the excitement of Dayton baseball. The CareSource Management 
Group is building a $55 million office building near the 
stadium. The city of Dayton is moving forward on Tech Town, a 
$25 million project created in the early stages of the baseball 
project to target technology companies.
    Other amenities have been successful due to the changed 
perception of downtown including the $120 million Schuster 
Performing Arts Center and the $32 million recreational 
development along the Miami River known as RiverScape. Each 
year, more than 500,000 come to downtown to enjoy the Dayton 
Dragons, also enjoying downtown's offerings of restaurants and 
entertainment options.
    Buildings have been renovated to include apartments, condos 
and loft living. Additional condos are being planned in and 
around the stadium. Minor League Baseball attracts fans 
throughout the region, helping to dispel those negative 
perceptions of downtown. Now, the Ballpark District, a $230 
million major mixed use development is being proposed around 
Fifth Third Field, capitalizing on the success of baseball.
    What have the Dayton Dragons accomplished? They have set 
the all-time Single A attendance record on three occasions. 
They have averaged over 580,000 fans each year. They have sold 
every single seat before the season's first pitch for 8 
consecutive years. That has never been done in over 100 years 
of Minor League Baseball history once. They have a sellout 
streak totaling 496 games which will grow to 566 games this 
year, our eighth season.
    Dayton has been in the top 10 in attendance in all classes 
of Minor League Baseball which includes 160 teams. Fifth Third 
Field has been selected as one of the top 10 ballparks, and the 
team has received sports industry awards recognizing the 
franchise as the best in minor league sports.
    So did the city achieve its goal? Did the team achieve its 
goal? The answer to both of these questions is yes.
    Baseball has an effect on people too. Non-profit 
organizations work at the stadium and have raised well over $2 
million for youth organizations. The Dragon's Hometown Heroes 
Program is designed to thank and take care of families of 
deployed personnel at the Wright Patterson Air Force Base.
    Also, the Dragons have introduced a program known as the 
Dragons MVP Program, a tool for teachers. This program is an 
incentive and award system for fourth and fifth graders. This 
program will be in 850 classrooms and will impact 25,000 
students in our area.
    Just finally, if I may, the city of Dayton and the Dayton 
Dragons are proud of what has been accomplished and believe 
that the proper foundation has been built for future growth, 
economic development and have truly created a city that has the 
quality of life that will allow the city to compete for people, 
companies and economically well into the future.
    Thank you very much, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman. By agreement, the 
gentleman is free to go right now, and we are going to move on 
to Mr. Issa's 6 minutes of questioning of Mr. Korb.
    I want to thank the gentleman for traveling here from 
Dayton and thank Mr. Turner for making sure his testimony was 
    Thank you, Mr. Turner.
    Mr. Turner. Mr. Chairman, I greatly appreciate your 
allowing him to testify.
    Mr. Kucinich. Absolutely.
    We will continue with Mr. Korb's testimony. Again, Mr. 
Korb, thank you very much for your generous agreement to remain 
here so that you can answer the questions. Also, we will look 
forward to joining our next panel momentarily.
    Mr. Issa, please proceed.
    Mr. Issa. Thank you.
    Mr. Korb. Yes, I do want to extend my appreciation to you 
for permitting me to testify.
    Mr. Kucinich. Thank you very much, Mr. Korb.
    OK, Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    Can we put up the paragraph from the memo we were handed 
earlier today? Is that as large as it can be?
    Mr. Korb, do you have a copy of this memo? Were you given 
    Mr. Korb. Yes, I do.
    Mr. Issa. My understanding, having read it, is that on the 
first page, the major paragraph which is actually the third 
paragraph makes it clear, as I see it, that in fact what you 
did was consistent with the public law and the precedent, and 
that is really what this says, notwithstanding page 3. Have you 
had a chance to read that?
    Mr. Korb. Yes, I agree with you.
    Mr. Issa. That is good that CRS, current CRS agrees that 
notwithstanding what might be right or wrong in a given city, 
that you made the ruling that was the only ruling you could 
make under the current IRS, non-changed.
    Let me go back through just one more thing because I want 
to understand. You have really done your work to be an expert 
on the history of this, but I want us to understand it too. In 
1971, the revenue ruling made it clear, if I understand, that 
the PILOTs were considered general revenue.
    Mr. Korb. Yes, I alluded to that in my opening statement.
    Mr. Issa. The bottom line is if you do a PILOT right, under 
current law, you are turning private money through this process 
into general revenue just like it was anything, and when it is 
spent, it is spent under the current congressional guidance to 
you and IRS rulings. You are turning it into general ruling for 
the city as though the city paid the whole thing directly.
    Mr. Korb. That is exactly right.
    Mr. Issa. It may be a loophole, but 1971 makes it a pretty 
old loophole.
    More importantly, not only is this specific and allowed, 
but it appears as though in 1986 when the House and the Senate 
each passed competing versions of the legislation that, in 
fact, governs today, that the House saw much closer to what Mr. 
Kucinich's first witnesses said, the majority witnesses said. 
They passed and said you shouldn't be able to have stadiums 
financed with these revenues, period, while the Senate allowed 
for the continuation of what you are faced with today. Is that 
your understanding?
    Mr. Korb. Yes. It is interesting; the last time I served, 
did public service with the IRS was 20 years ago, and I 
actually worked on the 1986 Tax Reform Act as the Assistant to 
the Commissioner, and you are exactly right.
    Mr. Issa. Faced with our decision from the House in 1986, 
our decision appears to be similar today, but it wasn't what 
prevailed in conference.
    When it comes to changing what you can change which you 
have now noticed, do you believe that you should be successful 
in at least going back to a pre-1997 standard?
    Mr. Korb. Yes, as I said earlier, the proposed reg in 1994 
is very similar to what the standard we used in our proposed 
    Mr. Issa. If this body wants to explicitly stop the 
financing of stadiums, not stadiums and other things like it, 
museums, etc., but specifically stadiums, will we have to give 
you new legislation in order for you to explicitly stop that?
    Mr. Korb. Oh, absolutely, yes.
    Mr. Issa. OK, well, that is what I wanted to achieve more 
than anything else is an understanding of your hands are tied 
as I understand. Beyond what you are trying to do through 
rulemaking, your hands are tied unless both the House and the 
Senate this time agree on a change, and that change would have 
to name stadiums in some way that would make them different 
than other public service entities that have a public-private 
    Mr. Korb. Yes, that is right.
    Mr. Issa. I guess we have been unfair with our time in many 
ways for you. Are there things that we should know beyond that 
here today, things that you think we haven't made clear in 
understanding what your limits are and how you have to treat 
these and equities that maybe we could change that exist in the 
    Mr. Korb. Again, remember, we administer the Tax Law at the 
Internal Revenue Service. We do not establish the policy. That 
is up to the Treasury Department to recommend changes and for 
you all to enact that.
    As you just said, the law is very clear that if a city or 
State wants to use governmental funds, it is perfectly free to 
do so under the law, and we are obligated in following the law 
when we act. We found this flaw in the regulation. We moved 
quickly to correct it. We cannot go any further than that.
    Mr. Issa. OK.
    Mr. Korb. At this point forward, that is all we can do.
    Mr. Issa. Good. I know you are not going to be able to give 
us an exact number, but when we talk about all the stadiums and 
ballpark expenses as a percentage of the moneys which cities 
spend, cities, counties, States spend and invest in various 
public works projects and as a percentage even of what private 
philanthropy gets a similar tax exclusion for, aren't we 
talking today at a fraction of a fraction of 1 percent?
    Mr. Korb. I would think so. I don't have any personal 
knowledge. It just makes common sense that is probably true.
    Mr. Issa. That is, as one member, what I would say. 
Although it is important to look at every issue, I would hope 
that we look with the same vigor at the 2, 5 and 10 percent of 
budget areas of cities, States and even private philanthropy as 
well as we look at this small part that I, as somebody who 
enjoys a baseball game, Major and Minor--and I have Minor 
League in my district proper--hope that we continue to find 
ways to make these things happen.
    Mr. Chairman, I appreciate your understanding in bringing 
this and your indulgence in the extended questions, and I yield 
    Mr. Kucinich. I thank you very much.
    Pursuant to the earlier order, we now return to the 5-
minute rule.
    Mr. Korb, there seems to be a confusion about the 1986 law. 
Isn't it true that the 1986 Act, that under that, sports 
stadiums were removed from the list of eligible activities for 
tax-exempt private activity bonds that exceeded 10 percent 
security interest test? Wasn't that the law?
    Mr. Korb. What happened, Congressman, as I said earlier, 
they were removed as private activities.
    Mr. Kucinich. Yes or no? I mean I just need that in order 
to understand this.
    Mr. Korb. You can still finance stadiums from general tax 
revenue even under the 1986 Act. That is the law.
    Mr. Kucinich. So you are saying that was the law?
    Mr. Korb. That is the law as of 1986.
    Mr. Kucinich. Was it the law for private revenue, and 
PILOTs are private, right?
    Mr. Korb. PILOTs are a substitute for taxes.
    Mr. Kucinich. Payment in lieu of taxes.
    Mr. Korb. Payments in lieu of taxes are substitutes for 
taxes. That is the whole idea.
    Mr. Kucinich. But that is the change that you made. That 
wasn't the way it was before you made the change, right?
    Mr. Korb. No, no. PILOTs, as Congressman Issa said, go back 
to 1971. The IRS, when you and I were both in school still, the 
IRS indicated that PILOTs are general.
    Mr. Kucinich. Here is what I don't understand then if that 
is true.
    Mr. Korb. This is very confusing. I can understand you are 
    Mr. Kucinich. Wait. No, I am not confused about this. What 
I am wondering is if that is true, why did the Yankees need a 
Private Letter? If what you say is true and Mr. Issa pointed 
out back to 1971, help me understand then what circumstances 
arose that required that the Yankees have a Private Letter?
    Mr. Korb. Well, these have to be governmental bonds, so 
they only can be paid out of generally applicable taxes. So the 
Yankees wanted the IRS to confirm under the 1997 regulations 
that these payments are going to be treated as generally 
applicable taxes.
    Mr. Kucinich. Have you done this before or did you have to 
make a special ruling that changed the nature of payment in 
lieu of taxes for this particular case?
    Mr. Korb. No. This is the law from the 1997 regulations.
    Mr. Issa. Mr. Chairman, I would ask unanimous consent that 
the 1971 ruling that makes this the case be entered into the 
record. I think it may help clarify.
    Mr. Kucinich. So ordered.
    Mr. Issa. Thank you.
    Mr. Kucinich. We will put this in the record.
    Mr. Korb, if an applicant seeks a Private Letter Ruling, 
must the IRS give it or does the IRS have discretion?
    Mr. Korb. To give a Private Letter Ruling? Unless it is a 
no ruling area, we generally give the Private Letter Rulings.
    Mr. Kucinich. In your earlier testimony, you stated that 
while attorneys you work with at the IRS interpreted the law in 
the 1997 regulation in one way, other attorneys may have 
interpreted it differently. Now a central element of the 
Private Letter Ruling you granted the Yankees was tax-exempt 
bonds to finance the new Yankee Stadium would fulfill a public 
    I want to quote from your Private Letter Ruling. ``Here, 
the payments in lieu of taxes are designated for a public 
purpose. The PILOTs, or payments in lieu of taxes, are being 
used to pay the debt service on the bonds which were issued 
specifically for the purpose of financing the stadium to 
promote and encourage economic development and recreational 
opportunities in the city.''
    That is from your Private Letter Ruling.
    Now, as you have heard, there is a consensus among the 
economists that stadium construction does not lead to economic 
growth. So my question to you is did the IRS simply accept at 
face value the claims of stadium financing applicants that the 
stadium would achieve economic development or did you try to 
verify the representations?
    Does the IRS consult academic literature? How do you come 
to that frame of mind that says, OK, we are going to have a 
Private Letter Ruling here, and this is the way it is going to 
    Mr. Korb. Well, that is a good question. Let me point out 
the law here because we always need to follow the law here. 
Under the 1997 regulations, the PILOTs are treated as generally 
applicable taxes if the payment is, one, commensurate with and 
not greater than the amounts imposed by tax of general 
application and, two--I am waiting for him to finish.
    Mr. Kucinich. Go ahead. I am listening.
    Mr. Korb. And, two, designated for a public purpose and not 
a special charge.
    And so, as our lawyers look at the law, we have to apply 
the law as it is set forth in the 1997 regulations. The PILOTs 
were based on generally applicable tax. It was a real property 
tax, and the stadium was for a public purpose.
    Mr. Kucinich. How do you determine that the financing would 
fulfill a public purpose? What did you describe as that public 
    Mr. Korb. Well, it is kind of interesting there because the 
regulations specifically contemplate a stadium being financed 
with the generally applicable ticket tax. I would have your 
assistant look at example 11 in the regulations there and ask 
himself the question, how can we treat a stadium different for 
purposes of the public purpose standard and the PILOT rules? It 
is a law that was written by the Clinton Treasury and had an 
example in there that said that a stadium qualified.
    We have to follow the law. We have no choice.
    Mr. Kucinich. And no discretion?
    Mr. Korb. On that point, no, we really don't.
    Mr. Kucinich. Mr. Souder.
    Mr. Souder. Mr. Chairman, I want to ask a question about 
the process. Doesn't Mr. Issa get a regular five now as well?
    Mr. Kucinich. Yes. I am sorry. Of course.
    Mr. Issa.
    Mr. Souder. I appreciate going to me first, but I have a 
slightly different angle, but if Mr. Issa would like to take 
his five.
    Mr. Issa. OK, then I will take my first.
    Following up, I heard the economist-settled question, but 
it wasn't settled in my mind.
    Your standard for whether it benefited a region was 
determined by the people of New York and particularly the area 
surrounding the baseball park. They felt, the city of New York 
in granting all the eminent domain and everything else, they 
felt that this was a qualified redevelopment. They felt that 
this would benefit the economy of their city.
    So when we heard earlier from an economist, we heard that 
on a macro sense the world was not better off because moneys 
were spent in New York. It didn't help people in Kabul or 
Islamabad or, for that matter, perhaps in California. But that 
was a macro statement. There was no statement that it didn't 
help the local areas. Just the opposite, I believe I heard that 
it may help a local economy, but it had no net effect, and that 
was what was being given to us.
    Is that what you heard and is that the basis that you have 
to go on of an economic benefit? The city thought there was an 
economic benefit for that region, right?
    Mr. Korb. Well, we have an easier time of it because we 
just look at regulation and our past rulings, and we have to 
follow the precedent. That is what we have to do, and the law 
was laid out very clearly.
    There was a 1972 ruling that permitted deductions for 
amounts paid by sponsors of a steeplechase race to promote 
tourism, and they said that money was expended by a State, and 
promoting tourism in the State is for exclusively a public 
    We just can't make it up as we go along as much as you 
might want to do that. We really have to follow the law as it 
is written, and that is one of the reasons, Mr. Chairman, we 
decided that it made sense here to propose a change in the law 
so that our successors in this job, the job I have right now, 
will be able to apply that rule.
    Mr. Issa. Excellent.
    Mr. Chairman, I would also like to put into the record an 
economist's study from the Robert A. Woods professor of 
economics at Smith College in Massachusetts. It is from May 1, 
2004, and it specifically deals with Atlantic Yards, estimating 
that the total of $2.93 billion over 30 years or a net present 
value of $1.08 billion would be the advantage for that 
operation. Although it may not be the one that is going to 
carry the day, it certainly seems that independent bodies such 
as a university economist very much believe that there can be a 
net economic benefit, and I ask that be placed in the record.
    Mr. Kucinich. Without objection, so ordered.
    Mr. Issa. Thank you.
    As we wind this thing down, first of all, I want to thank 
you for being here and for representing so well the obligations 
of the IRS. As I understand it, you are one of the least 
stocked with political appointee bodies there is.
    Mr. Korb. There is only two of us, the commissioner and me. 
That is it.
    Mr. Issa. Right, you and the Commissioner.
    Unlike other organizations, and we oversight a lot of these 
in which we hope that administrative appointees get in there 
and beat up the bureaucracy, you essentially work for an 
organization that is the most apolitical organization that 
there is, from what I can see.
    Mr. Korb. And the organization is very proud of that.
    Mr. Issa. We are proud, too, to know that what we pay to 
the IRS stays at the IRS, so to speak, and they do a great job 
of revenue collection. I think that is my closing question. 
Essentially, isn't it your job and your organization's job, 
every person at the IRS, to collect every possible nickel on 
behalf of the American people that public law allows?
    I don't mean to twist and turn, but I mean that given a 
bias, your bias is toward revenue collection, isn't that true?
    Mr. Korb. People don't like to hear this, but one of our 
important jobs is to protect the fisc. That is exactly right.
    Mr. Issa. In a sense, if we had given you some ability and 
if that ability would allow you to say, no, please go issue 
those bonds but we want our cut of it, you would have done 
    Mr. Korb. Exactly.
    Mr. Issa. And you would have done it in 1971, in 1986, in 
1997 and in this millennium. So over Republican and Democratic 
Congresses, Republican and Democratic administrations, your 
body has been tied by two things: one, the law and, two, the 
continued will of the Congress not to change that law. Even 
when we overhauled in 1986, we ultimately did and then undid 
the guidance because of the very nature of what these stadiums 
represent to communities and to our cultures, isn't that right?
    Mr. Korb. That is correct. That was a bipartisan effort at 
that time too. People forget that, but the other body was 
Republican in those days.
    Mr. Issa. Thank you and thank you for your being here 
    Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman.
    Mr. Souder.
    Mr. Souder. Thank you, Mr. Chairman.
    I wanted to make a few general comments because I haven't 
had much opportunity to participate in the hearing for a 
variety of reasons, not the least being chopped up with votes 
on the floor and then a committee markup.
    I have a couple of frustrations. I know that the chairman 
is generally very fair person, but I was very concerned that 
there really hasn't been debate in the panels and had you not 
so generously allowed the gentleman from Dayton to come up 
here, we would have never heard debate during this.
    I came in more receptive to your position, and as I 
listened to the earlier panels and then read the testimony, I 
am less convinced now of the problem than I was when I came in 
because when you only hear witnesses stacked one direction, and 
most of the last panel is, you wonder what they are hiding. I 
felt that there were a number of appalling gaps in the 
presentations in the first and second panel. For example, what 
would have happened had a stadium not been in downtown Detroit, 
Seattle or in New York?
    If you take an undervalued property in a brownfield in an 
urban center and then instead of doing it there, go out to the 
suburbs at an interstate exit, the displaced property values. 
In other words, part of the reason there are public incentives 
on downtown properties is because in these brownfields, for a 
variety of reasons--environmental, crime, transportation 
systems--the private sector isn't investing in those.
    But if we put the stadiums out and made it a pure profit 
venture, they would go out and displace because the basic 
assumption in these financial analyses that we heard beforehand 
is that there is a lost dollar value to the community.
    But if you put a less return property that doesn't 
generate--if indeed you accept the premise that they don't 
generate a lot of other revenue around them--in an area that is 
a high value value-added to the area, for example, at 
interstate exits and others, you would have to have a whole 
different financial calculation. In other words, there are huge 
gaps in just trying to present this as an almost anti-
capitalist venture because if the capitalists did a pure 
market, they would have a different pattern. There is a 
secondary agenda, and that is to revitalize certain areas.
    Also, and this disturbs me because, under oath, one of the 
witnesses said that all of these sports areas had failed to 
achieve their community goals. That is a very broad sweep, and 
it was under oath. In particular, what I think is important to 
ask, and I have to head to the airport like the other members 
and maybe it will come up in the last panel or hopefully if any 
of the witnesses want to respond in writing to the hearing 
    Is this true of Minor League Baseball? What about Dayton? 
That was a very compelling case. Minor League Baseball teams 
have a different challenge than many of these major urban areas 
and the question of have some of them worked, some of them not 
    Can you make a uniform statement and what kind of responses 
are there to Dayton, to other areas that have had more mid size 
and smaller size city efforts? This is a debate going on in my 
hometown of Fort Wayne, IN. It is a debate that goes on in 
smaller and mid size cities all over the country, and the 
challenges of many of our really hard hit urban centers are 
substantially different than the challenges, similar, may rhyme 
but substantially different than the challenges faced in small 
town America or mid size city America.
    By having a hearing that implies that any public bonding of 
any type of sports franchise always fails and lets that stand 
undebated until mid to late afternoon and when most of the 
press corps has left is just, I believe, not fair. We should 
have had this debate on the first panel, and I hope in the 
future the chairman realizes that his own cause can be 
furthered by letting members, who may start receptive, hear 
some cross-correlation and debate in the panels.
    I yield back.
    Mr. Kucinich. To my good friend, Mr. Souder, our majority 
staff had worked with the minority staff and offered them the 
opportunity to choose witnesses. They chose two witnesses for 
this hearing. One was the gentleman from the Dayton Dragons, 
Mr. Murphy, who asked to testify earlier, and the other one is 
Michael Decker who is the senior managing editor of the 
research and public policy of the Securities Industry and 
Financial Markets Association.
    In addition to that, we made an effort to have Major League 
Baseball come and testify. They have refused.
    The representative of the IRS, Mr. Korb, certainly 
represents a point of view that is, I would say, vastly 
different than some of the witnesses that we asked to come 
    So I think that anyone who was watching this would feel 
that they have been able to get both sides of the question 
because there are two sides, and I want to make sure that they 
are presented here.
    I thank the gentleman for expressing his concerns.
    We are going to go to just a final round of questions for 
Mr. Korb, and then we are going to go to the fourth panel. I 
appreciate continuing appreciation for your presence.
    I want to address the issue of the decision to cancel a 
public hearing and begin by asking you what is the status of 
the rule change now?
    Mr. Korb. That is a good question. I meant to cover that in 
my opening statement. Where we are right now is we are in the 
process of reviewing the public comments on the proposed regs, 
and we anticipate receiving more, and we will be making a 
decision as to whether to finalized the proposed regulation in 
the form proposed hopefully before the end of the summer.
    I don't have the facts on this particular hearing. We could 
followup for the record. Often times, nobody requests to come 
in, and so if nobody requests to come in, then we will cancel 
the hearing. I don't know the facts of this particular one, and 
we can submit that for you later. I can tell you exactly what 
happened here.
    Mr. Kucinich. Well, are you aware? You are saying that 
rule, it still is in the proposal level and that it is has not 
gone into effect?
    Mr. Korb. Oh, right, it is still proposed, absolutely.
    Mr. Kucinich. In your Notice of Proposed Rulemaking, you 
notice a public hearing on this proposed rule change. It was 
set to occur on February 13, 2007. Did this public hearing 
    Mr. Korb. No one asked to attend.
    Mr. Kucinich. That was the reason for the cancelation?
    Mr. Korb. Right. We don't, we have to pay for the room, so 
if nobody is going to attend, we are not going to hold the 
    Mr. Kucinich. Are you aware that you did, in fact, receive 
a comment from a Mr. Daniel Steinberg of an organization known 
as Good Jobs New York? In it, he presents an argument based in 
large part on testimony given by the New York City's Department 
of Finance that payments in lieu of taxes are not equivalent to 
generally applicable taxes.
    I want to quote from a copy of a letter that was sent, I 
believe, to your office on April 25, 2005: ``New York City's 
Corporate Counsel, Michael Cardozo argued that PILOTs, payments 
in lieu of taxes, are not the same as taxes.''
    This is in inner quotes: ``Contractual rights to receive 
payments in lieu of taxes in the future directed by the mayor 
pursuant to economic development agreements are not revenues of 
the city. They are, instead, contract rights that can be 
transferred or otherwise disposed of by the mayor.''
    It goes on to say: ``And they are therefore not subject to 
payment into the general fund and subsequent appropriation.''
    Do you think that Mr. Cardozo, who was representing the 
city of New York at a public hearing of a committee of the New 
York City Council, made a valid point about the distinction 
between tax revenue and payments in lieu of taxes, if you could 
answer that question?
    Mr. Korb. Sure. At this point in time, since we have a 
notice and comment process, I don't want to prejudge where we 
are going to come out in this regulation, and so when I testify 
at hearings like that, that is the answer I give. We are in the 
middle of a process. It is best to wait until all the comments 
are in.
    When did you say we received this?
    Mr. Kucinich. The staff could make a copy of this for you.
    Mr. Korb. I am just wanting the date.
    Mr. Kucinich. January 16, 2007, and that was the closing 
    Mr. Korb. So it is one of the comments. All right, fine, 
that will be taken into account, clearly, as part of this 
process. Our people review all the comments. I think there were 
just a handful, a couple. This is a thoughtful process. We take 
our responsibilities very seriously.
    Mr. Kucinich. Are you familiar with those comments when 
they come in?
    Mr. Korb. No, no, no, I do not, no. Remember, we have 
hundreds of regulations projects going on at any on time.
    Mr. Kucinich. In reading your proposed rulemaking, I am 
looking for evidence that you made a distinction between tax 
revenue and payments in lieu of taxes. Have you made that 
    Mr. Korb. In the proposed regulation?
    Mr. Kucinich. I am just saying from my reading of the 
proposed rulemaking, there is no evidence.
    Mr. Korb. I have it right here. The thing that we put in 
the Federal Register on October 19, 2006, that defines the 
commensurate standard. Is that what you are looking at?
    There is a Section 1.141-4, Private Security Payment Test, 
E5, Payments in Lieu of Taxes. Is that what you are referring 
    Mr. Kucinich. Right.
    Mr. Korb. What is the question?
    Mr. Kucinich. The question is where is the evidence that 
you considered the distinction between tax revenue and payments 
in lieu of taxes?
    Mr. Korb. Well, when you look at the rule here, remember, 
what we are trying to define here is the first part of that 
test. Remember, I talked about that two-part test, the 
commensurate, we will call it the commensurate with generally 
only applicable taxes. The way this rule, what we do is we have 
a series of rules here, and again there is a real 
misunderstanding of what we did, OK, and maybe you ought to 
have your guys go back and look at it.
    Mr. Kucinich. Actually, you and I are looking at it right 
now, sir.
    Mr. Korb. OK, but what we have done here is we have tied 
payments in lieu of taxes in a way so they tie into taxes. What 
are generally applicable taxes? The 1997 regs were much looser.
    So now, if you look at the rules we have set out here, 
basically, the way you would comply with this is you would 
value the property.
    You should know, Mr. Chairman, Ohio, we have a very unusual 
situation based on a 1948 case dealing with the Cleveland 
Municipal Stadium. Even though that was a city-owned property, 
that was a taxable property on the real estate rolls. I don't 
know if you knew that or not. McBride, the guy who owned the 
Browns, lost the case where he claimed that since the city 
owned it, he didn't have to pay real estate taxes, OK.
    So the way this would work--if you think about this, it 
makes sense--is that you would value the property----
    Mr. Kucinich. You can continue, really. I can walk and chew 
gum at the same time, and you can continue.
    Mr. Korb. All right, that is fine.
    You value the property as you would any other commercial 
property. You have an assessment rate, and you apply the tax 
rate. So they are trying to equate. That is the way you would 
want to do this, it seems to me, if you want to figure out what 
is a generally applicable tax, and that is what these rules do.
    Mr. Kucinich. Well, as the flow of this hearing goes and I 
saw this letter from Steinberg, I was wondering if there was 
just a coincidence that he provided comment to the IRS on a 
proposed rulemaking, and IRS canceled its public hearing.
    Mr. Korb. He wasn't the only one who commented. We had 
other comments as well.
    Mr. Kucinich. So then why wasn't there an effort?
    Mr. Korb. He must not have asked for a hearing. If he had 
asked for a hearing, we would have had a hearing.
    Mr. Kucinich. We have this correspondence that shows that 
he was making a distinction between the tax revenue and 
payments in lieu of taxes, and what I am wondering is as he was 
making that distinction that seemed to run a little bit 
contrary to the IRS' rulemaking on this. So what I am asking 
you is after hearing this discussion in this committee today, 
do you have any interest in a public hearing?
    Mr. Korb. We will go back and take a look at it. I mean I 
don't know why not, but I will go back and look. We would have 
to go through I don't know what the legal process is.
    Mr. Kucinich. Do you have the discretion to?
    Mr. Korb. I don't know. I would assume I would. I am the 
Chief Counsel, right. So we will figure it out. We will figure 
it out.
    And let me tell you it is not uncommon. I have had 
experience in the past when I was here before where Members of 
Congress have actually come and testified at the hearing. So we 
would welcome that. This is an open process, OK. This is a very 
open process, and so we welcome comments. We want to know this 
from all sides. We welcome that.
    And I think you would want me. I will be one of the two 
decisionmakers here basically along with the Assistant 
Secretary. You would want me to have an open mind at this point 
until all is said and done, I would hope.
    Mr. Kucinich. I appreciate you describing it as an open 
process, but I would guess that until we have had this open 
discussion, there have been elements of this process that have 
been lacking in transparency. Private Letter Rulings are, by 
their nature, as you indicated at one point, limited in how 
much is able to be disclosed when you are talking, and I 
understand that.
    Mr. Korb. There is a reason for that. Remember the tax law, 
    Mr. Kucinich. I understand that much. On the other hand, 
when you get from tax policy that goes from an individual 
taxpayer following the tax laws of this country to an applicant 
for a particular privilege where they transit from private to a 
public interest, it puts it in realm that is somewhat unique.
    Therefore, the purpose of this hearing, which is to delve 
deeply into issues of the circumstances under which tax-exempt 
financing is offered, has its relevancy in raising the 
questions, not only about transparency but as Chief Counsel how 
do you make these distinctions. If that is not very clear 
coming out of this hearing, then the public may still have some 
lingering questions as to whether or not some people received 
some benefits that maybe under the circumstances they shouldn't 
have received.
    Mr. Korb. Can I respond to that?
    Mr. Kucinich. Yes, sir.
    Mr. Korb. All right, three things: No. 1, as part of our 
comment process, when we put out the final reg, we detail 
comments. We discuss the comments, and we explain why we don't 
adopt comments or why we would adopt the comments, totally 
transparent. You can send one of your aides down to our reading 
room right now and get a copy of every single letter that is 
filed on comments for our regulations, totally open.
    I just want to reiterate again. You make it sound like we 
somehow closed this guy out. No one requested a hearing, and we 
do not hold hearings if they don't, people don't request them. 
If somebody had requested a hearing.
    Mr. Kucinich. If I may, that is an interesting point. I 
mean you are saying under no circumstances would you ever hold 
a hearing unless somebody requested it, no matter what the 
level of public policy was involved.
    Mr. Korb. What would be the purpose of the hearing if 
nobody showed up?
    Mr. Kucinich. It seems to me, going back to my days in city 
council, that there are certain requirements in the public 
interest for even a zoning matter, that people receive a 
notice, on a liquor permit, that people receive a notice so 
that they have an opportunity to be able to testify. Some of 
these hearings took place whether people showed up or not.
    The question is, as a matter of public policy, do you see 
any reason to go forth and hold public hearings and demonstrate 
in good faith, bringing out these issues in a transparent way?
    Mr. Korb. I am not an expert in administrative law, but I 
would be quite concerned if we are not following the 
administrative procedure act or whatever it is. We will take a 
look. We will take a look. We could have a hearing.
    Mr. Kucinich. Well, I think this hearing would prove to you 
there is an interest in payments in lieu of taxes as a matter 
of policy.
    Mr. Korb. Well, it may now with this publicity. Sure, that 
is possible. But I am saying nobody asked. I am being honest 
with you. Like you, I am a guy from the Middle West here. I am 
telling you, nobody requested a hearing, OK. Nobody requested a 
    If somebody had requested a hearing, we would have had a 
    Mr. Kucinich. On matters of tax policy like this, the 
general public may not have access to the policy implications 
of the kind of rulemaking that you are talking about, and as a 
result of publicity related to this, it seems to me there may 
be a higher degree of interest.
    Mr. Korb. All right, there might be. Don't get me wrong; we 
have hearings all the time. All the time, we have hearings. We 
have hundreds of regulations that we are working on at any one 
point in time.
    I will tell you, though, it is not uncommon either for 
nobody to request a hearing. It is expensive to come to 
Washington, all sorts of things. That is why I think the APA 
uses the public.
    You know anybody can write in, and I will tell you from my 
experience, our people, the people at Treasury take that very 
seriously. They compile a list of all the comments that come 
in. They go through and digest them. It is amazing, the effort 
that goes into this, and that is what you would want, you would 
expect, you would demand, and that is done.
    Mr. Kucinich. Again, transparency has symmetry if you have 
a transparent process where you are able to determine the 
distinction between tax revenues and payments in lieu of taxes 
on the one hand and whether you are holding public hearings or 
not. This committee is interested in how the process that you 
are involved is able to be determined by the public so that in 
the event that people want to participate.
    I am interested in how you arrive at reaching out to the 
public to let them know what you are doing because we are not 
just talking about an ordinary tax matter here as you well 
understand which is one of the reasons why we needed to hear 
from you at length, and you testified as to the complexity of 
    Mr. Korb. It is very complicated.
    Mr. Kucinich. But at the same time, the complexity of it 
would seem to put a higher standard upon the IRS to reach out 
and let the public know about the implications of this. You 
make a lot of efforts, gratefully, to simplify tax forms. It 
would seem to be in the public interest for you to make an 
effort to simplify a discussion of a complex tax matter as a 
matter of public policy.
    I want to thank the gentleman for his presence here, for 
his being with this committee process for the better part of 
this day. You have absolutely made a good faith effort to 
describe the policy, to communicate your position to this 
committee, and the committee is grateful for that, and I thank 
    Mr. Korb. Thank you. I appreciate it.
    Mr. Kucinich. I am going to call the final panel now.
    Will the witnesses rise, please?
    [Witnesses sworn.]
    Mr. Kucinich. Let the record show that the witnesses 
answered in the affirmative.
    We are fortunate to have an outstanding group of witnesses 
on this panel.
    We have Mr. Neil deMause, a native New Yorker who has 
written for the Village Voice sports section, New York Newsday, 
Sports Jones, and the Guardian Newsweekly. He is a regular 
contributor to several progressive publications including Z 
Magazine. His book, Field of Schemes: How the Great Stadium 
Swindle Turns Public Money into Private Profit, casts a 
critical eye on the use of public funds to build new sports 
    The next witness, Dr. Heywood Sanders, is a professor in 
the Department of Public Administration at the University of 
Texas, San Antonio. Dr. Sanders is among the best known 
independent critics of publicly financed convention centers. He 
served as a Senior Program Analyst at the Office of Evaluation, 
Community Planning and Development of the U.S. Department of 
Housing and Development. His publications include Convention 
Myths and Markets: A Critical Review of Convention Center 
Feasibility Studies and Challenging conventional Wisdom: Hard 
Facts about the Proposed Boston Convention Center.
    Finally, the third witness, Michael Decker is a senior 
managing director of research and public policy for the 
Securities Industry and Financial Markets Association which 
promotes policies and practices designed to expand and perfect 
markets, foster development of new products and services and 
create efficiencies for member firms. The Industry and 
Financial Markets Association seeks to preserve the public's 
trust and confidence in markets and industry and was created as 
a result of the 2006 merger of the Bond Market Association and 
the Security Industries Association.
    Gentlemen, thank you for your presence.
    Mr. deMause, you may proceed with your testimony.

                         WASHINGTON, DC

                   STATEMENT OF NEIL DEMAUSE

    Mr. deMause. Good afternoon. I would like to thank Chairman 
Kucinich and the other members of the committee for holding 
this important hearing.
    My name is Neil deMause. I am co-author of the book, Field 
of Schemes, as well as a business of baseball writer for 
Baseball Prospectus and other publications.
    In the nearly 12 years I have been researching this topic, 
sports stadiums and arena deals have cost local, State and 
Federal Governments more than $10 billion in taxpayer money, 
and this is on the rise with government spending on sports 
facilities now costing more than $2 billion every year. 
Advocates of these subsidies insist they are a good use of 
public money even as schools, transportation and other public 
necessities go underfunded.
    Let us examine the arguments. First, stadium boosters claim 
they provide a shot in the arm to local economies. I have yet 
to find any independent economists who see any significant 
positive impact from stadiums. It is not just the people 
testifying here today. Studies with cities with new stadiums 
have found no sign of increased per capita income. In terms of 
job creation, they typically cost as much as $250,000 per each 
new job which is simply a terrible bang for the buck.
    While stadiums are often built to take advantage of already 
rebounding districts like Baltimore's Inner Harbor, there is no 
sign they can create new development by themselves. As Chairman 
Kucinich is no doubt aware, a block or two away from Jacobs 
Field in Cleveland, you see the same shuttered stores as 
    Team owners often claim they will move if their demands are 
not met, but most often they are just crying wolf to shake 
loose a few more taxpayer dollars. Both the Chicago White Sox 
threatened to move to Tampa Bay and the Minnesota Twins to 
North Carolina. It turned out to have been ideas hatched in 
Governors' offices to scare locals into coughing up funds for 
new stadiums at home. White Sox owner, Jerry Reinsdorf, later 
admitted he would never leave the Nation's third largest media 
market for one of the smallest, but he explained ``A savvy 
negotiator creates leverage.''
    Yet, even when there is no viable move threat, we still see 
cities bidding against themselves. Washington, DC's $611 
million gift to the Nationals was even more incredible 
considering no other city made a viable offer to build a 
    Team owners say their current homes are economically 
obsolete. In other words, they can make more money with a new 
one so long as they didn't have to pay for it. As places to 
watch sporting events, though, new facilities are often worse 
than the old buildings they replaced. Cheap seats are fewer and 
farther from the action thanks to layers of corporate seats 
pushing upper decks skywards, and fans can expect to pay more 
for the privilege. Baseball teams moving into new parks raised 
ticket prices by an average of 41 percent their first year 
    The latest edition to the stadium playbook is hidden 
subsidies such as free rent, tax breaks and infrastructure 
expenses. New York City Mayor Michael Bloomberg promised new 
Yankees and Mets stadiums would cost taxpayers nothing. In 
fact, as you will see in my written testimony, after tax and 
rent kickbacks, the public share was almost $800 million, more 
than the teams themselves end up spending.
    Harvard researcher, Judith Grant Long, has found that once 
hidden subsidies are accounted for, the average stadium now 
costs 40 percent more than publicly reported, and that figure 
is on the rise.
    As someone who writes critically about public spending on 
sports facilities, I am often asked, do you hate all stadium 
deals? Now, certainly there is a price deal where it would make 
sense for cities to contribute a small share for stadiums, but 
in reality there are very, very few examples of good deals for 
the public. I think if we grant the argument that Dayton's 
stadium is a good one, for every Dayton, there are a hundred 
Aberdeens where we are seeing the State of Maryland being asked 
to bail out a money-losing stadium.
    This points to the sports industry's dirty little secret. 
New stadiums don't make money. While teams are quick to paint 
new buildings as cash cows, the new revenues are almost never 
enough to pay for all the land and construction costs.
    This is important. Teams don't want new stadiums because 
they make money. Teams want new stadiums because of the public 
subsidies that come with them.
    Now, there are several ways that Congress can act to stop 
wasteful spending on sports facilities. First, close the 
loophole we have been talking about today that allows sports 
teams to use Federal tax-exempt bonds. Kansas City Royals fans 
would no doubt not be pleased to learn that their tax dollars 
are going to help make the New York Yankees and Mets even 
richer, and I think no one would be pleased to learn that the 
New York Yankees and Mets were able to go before the New York 
City Council and argue that these were stadiums being built 
entirely with private funds and then go to the IRS and say, no, 
no, no, all this money is actually tax dollars.
    Second, drastically restrict the business retainment 
deduction for luxury box and club seat purchases. Take away tax 
subsidies for businesses to buy tickets to sporting events, and 
you will reduce the demand for new stadiums and leave more 
tickets for the average fan who can't take a tax deduction on 
spending a day at the ballpark.
    Finally, put the brakes on for all industries holding 
cities hostage for tax subsidies with legislation such as that 
proposed by your former colleague, David Minge, which would 
have taxed all direct and indirect subsidies to corporations as 
income. A team owner asking for $500 million stadium subsidy 
might think twice if he was going to face a $150 million IRS 
bill as a result.
    In the rush to build new sports stadiums, we have lost 
historic ballparks such as Tiger Stadium and soon Yankee 
Stadium. We have seen public parks destroyed and thriving 
neighborhoods disrupted. We have hastened the transformation of 
sports fandom from an experience that brought together people 
from all walks of life into one that is affordable only to the 
well heeled, and we have cost local, State and Federal 
Governments billions of dollars.
    In polls and referendums, voters across the political 
spectrum are consistently opposed to spending sorely needed tax 
dollars just to make rich sports teams even richer. To our 
elected officials, I say the ball is now in your court. Thank 
    Mr. Kucinich. Thank you, sir.
    [The prepared statement of Mr. deMause follows:]
    Mr. Kucinich. Dr. Sanders.


    Mr. Sanders. Thank you, Mr. Kucinich. It is a pleasure to 
join you and your committee colleagues here this afternoon.
    If we look at the title of this hearing, it is really quite 
striking. I get to be the Tail End Charlie in dealing with 
convention centers and publicly financed hotels. The title 
poses the question, do these facilities deliver as promised? To 
that, we can give a fairly clear answer. With only the rarest 
of exceptions, absolutely no.
    Why? Why are convention centers such a modestly productive 
public investment? In part, because so many cities have chosen 
to invest in these same facilities in recent decades. From 
about 32.5 million square feet of exhibit hall space in 1986, 
the best count we have is now in excess of 66 million. We have 
more than doubled the stock of exhibit hall space in this 
country, adding new convention centers and expanded ones in 
cities across the country. I note, however, Cleveland is an 
intriguing exception as is Dayton, as I understand it.
    With this incredible development of convention centers at 
public expense has come a situation of over-supply and 
increased competition with relatively modest growth in the 
demand for convention facilities. Out of town visitors that 
cities expect and anticipate, the visitors that are forecast to 
come to these convention centers, come in far more modest 
numbers than expected and in recent years in even fewer numbers 
as the years go on.
    The result is a situation where from one end of the country 
to the other, cities of all sizes are offering a variety of 
incentives and discounts and giveaways in order to try and lure 
convention events and their attendees to their communities. I 
note that St. Louis offers folks their convention center rent-
free this year if you feel like going to St. Louis with some of 
your friends and colleagues.
    The promises inherent in these forecast are equally 
intriguing. I recall the case that you actually alluded to in a 
study I did in 1997, the proposed Boston convention center. I 
was quite struck that the consultant for the Commonwealth of 
Massachusetts forecast that with a new convention center, 
Boston would add in excess of 750,000 hotel room nights. That 
is one room in a hotel occupied for one night each year, a 
total that would grow and remain fairly stable.
    I was rather more pessimistic, given my assessment of the 
market. I concluded that their hotel room night generation 
would be rather on the order of half that figure. It turned out 
that for last year, it came to about 340,000, a bit shy of the 
770,000 anticipated.
    It is also presumed that every convention and trade show 
attendee will spend in excess of $1,000 in a city and stay 3\1/
2\ days, and we have a great deal of evidence including the 
Boston case but a great many others, that simply doesn't occur.
    The expectation of a convention center, that at the very 
least it will bring visitors from out of town and yield a great 
deal of new private investment, precisely the kind of private 
investment and development Mr. Murphy was talking about in the 
Dayton case, we should see that were we to look. Private 
investors should flock to build hotels adjacent or nearby new 
and expanded convention centers.
    Instead, we see a rather different pattern in recent years. 
Increasingly, cities are going into the convention center hotel 
business, using tax-exempt municipal bonds to build hotels that 
are fully publicly owned. In two cases, St. Louis and my own 
community of San Antonio, cities have made use of Federal 
empowerment zone bonds in a similar fashion to build and 
finance hotel development.
    Publicly owned hotels in Austin and Houston, TX, Omaha, Bay 
City and even one being discussed as a potential for Cleveland 
present us with an intriguing case. Cities are trading, going 
into a business where private investors have simply perceived 
far too great a risk and uncertainty. At the same time, these 
publicly owned hotels are directly competing with privately 
owned and privately financed hotels directly across the street 
in some cases, hotels that do not have the advantage of tax-
exempt municipal bond financing and lower interest rates.
    The result has often been to seriously impact the local 
hotel market, reduce rates, reduce returns and intriguingly, in 
the case of Houston, force a Hyatt Hotel in the downtown area 
to foreclosure.
    So we, in essence, have a situation where having made an 
investment that has proven remarkably modest in terms of its 
economic impact and productivity, cities now pour even more 
money into the hotels that were supposed to be generated 
    Thank you.
    Mr. Kucinich. Thank you very much, Dr. Sanders.
    [The prepared statement of Mr. Sanders follows:]
    Mr. Kucinich. Mr. Decker, thank you. Proceed.


    Mr. Decker. Thank you, Chairman Kucinich. I appreciate the 
opportunity to be here today.
    The Securities Industry and Financial Markets Association 
represents securities firms, banks and asset managers active in 
the global securities markets. Our members include all major 
dealers in State and local government bonds issued to finance a 
wide variety of public infrastructure. In short, SIFMA's 
members serve as the conduits between State and local 
governments and the capital markets. We take an active interest 
in Federal policy that affects the ability to States and 
localities to tap the capital markets to finance new 
    The Federal tax exemption on the interest earned by 
investors on most municipal bonds gives State and local 
governments that borrow in the capital markets a significant 
break on their interest rates. In fact, the tax exemption is 
one of the most important sources of Federal aid to States and 
localities. It saves State and local governments tens of 
billions of dollars a year. It requires very little Federal 
bureaucracy to oversee and allows State and local communities 
to make their own decisions about competing priorities for 
capital investment.
    The tax exemption represents an ideal Federal-State-local 
financial partnership.
    Local communities have a long history of using bonds to 
finance stadiums and arenas for professional sports teams as 
well as convention centers and other projects designed to jump 
start economic development and enhance the quality of life 
including the 1930 Cleveland voters' approval of $2.5 million 
of city bonds to build Cleveland Municipal Stadium which became 
the longtime home of the Indians and Browns.
    Before 1986, many bonds sold to finance stadiums were 
backed directly or indirectly by the professional teams that 
used the stadiums as we have learned throughout the day today. 
With the enactment of the Tax Reform Act of 1986, Congress 
prohibited these kinds of bonds known as private activity bonds 
from being used for stadiums and arenas, convention centers and 
hotels. At the same time, Congress left the door open for 
communities to commit public resources to finance stadiums and 
the like.
    Since 1986, if a local government wants to use tax-exempt 
bonds to finance a stadium, that community has to pledge some 
public source of funds such as taxes or other dedicated revenue 
to back the bonds. The tax code includes a two-part test for 
determining whether a bond issued by a State or local 
government is for a public purpose or private activity. 
Basically, a bond is a private activity bond if the facility 
being financed is used mainly by a private business and the 
repayment of principle and interest on the bond is secured by a 
private business. If a bond meets those tests, it cannot be 
federally tax-exempt unless it meets an explicit exception 
which does not include stadiums.
    However, if a tax-exempt bond for a stadium or any other 
project is backed by a public source of funds, that fund is 
deemed to be a public purpose bond. In that case, there are 
relatively few tax code restrictions on what the bond may be 
used for.
    In devising a two-part test for private activity, Congress 
clearly foresaw that local communities may want to commit 
public resources to finance facilities used principally by 
businesses like sports teams. The two-part test wisely 
recognizes that decisions on where and how direct public 
resources are best made by local communities themselves, not 
Congress or the Federal Government, and local communities 
shouldn't lose the ability to use tax-exempt financing for 
projects that might benefit a private business in addition to 
the community overall.
    I point out a couple of observations regarding the use of 
tax-exempt bonds for sports stadiums in particular. The tax 
exemption is important, and it reduces the cost of developing a 
sports stadium but only by a little bit compared to the overall 
cost of the project. If you take a $400 million stadium deal, 
the tax exemption doesn't reduce the $400 million construction 
cost of the project at all, and it doesn't eliminate the 
requirement to pay interest on the bonds.
    It does reduce the interest rate on the bonds and would 
save the public developer of the project millions of dollars, 
but there still would be a considerable demand on public 
resources regardless of whether the stadium were financed with 
taxable or tax-exempt bonds.
    In addition, if you eliminated the tax exemption on public 
purpose bonds used to finance stadiums, you wouldn't reduce the 
pressure that sports team owners sometimes place on public 
officials to build stadiums using public resources. You would 
raise the cost to local governments and actually put a great 
demand on resources that local governments would have to meet 
in order to finance stadiums and meet team owners' demands.
    The debate over whether the economic benefits of stadiums, 
arenas, convention centers and hotels justifies the use of 
public resources is a controversial one. There is evidence on 
both sides of the debate.
    SIFMA believes strongly that the decision can only be made 
efficiently at the State and local level by the citizens and 
policymakers closest to the issues involved. We also believe 
that Congress should not disrupt a decades old statute defining 
which types of governmental projects should quality for tax-
exempt financing.
    Thank you for the opportunity to be here today. I look 
forward to your questions.
    Mr. Kucinich. I thank the gentleman. We are pleased that 
you are here as we are pleased that all the witnesses are here.
    [The prepared statement of Mr. Decker follows:]
    Mr. Kucinich. Mr. deMause, you said something in your 
testimony. Among the things you said that caught my attention, 
you said that in New York the city government would have a case 
presented to it that said that the project involves private 
money, and then the same project would go to the IRS and it 
would be said that this is a publicly financed project. Could 
you go over that again?
    Mr. deMause. Sure. I was present at the New York City 
Council Finance Committee hearing where the Yankees testified 
repeatedly that the City Council should approve this project 
because all construction was being paid for with private money. 
This is the exact same money that they then called PILOTs and 
said were generated.
    Mr. Kucinich. Payments in lieu of taxes.
    Mr. deMause. Payments in lieu of taxes and told the IRS in 
their request for Private Letter Ruling were substituting for 
generally applicable taxes.
    Mr. Kucinich. And the implications of that? That led to 
    Mr. deMause. The implications are that they got the Private 
Letter Ruling and that they were able to get, to sell the 
bonds, and they are now building the stadiums right now.
    Mr. Kucinich. Explain this for someone who may have just 
come into this discussion, what this implications of this are. 
Let us try to take this more into layman's terms.
    Mr. deMause. Sure, sure, absolutely. What happened here was 
that the Yankees and the Mets decided that it was not 
politically feasible to ask for public money for the stadium 
construction. They asked for a lot of public money for land and 
infrastructure. They asked for tax breaks. They asked for other 
    But they were building these stadiums that were in one case 
about $600 million and in the other case about $1 billion, and 
they decided that it was not politically feasible to go to the 
City Council and say, we want public money. So they said we are 
building it all with private money.
    However, they did not want to have to use taxable bonds 
because those are expensive. So they said, we have this tax 
deal worked out. We think it is going to fly with the IRS where 
we can use tax-exempt bonds, lower our costs by passing off 
some of the costs to Federal taxpayers by calling these private 
payments. We are not going to call them rent because if we call 
them rent, we are going to trip the private activity trigger 
and we are not going to be able to use tax-exempt bonds. We are 
going to call them PILOTs, and therefore the IRS will say OK.
    Mr. Kucinich. Have you quantified what that means in terms 
of how much Federal tax dollars end up going to subsidize this 
    Mr. deMause. The numbers--I believe these are city numbers 
which I think are a little bit low, but this is the best 
numbers that we have--are that the Yankees stadium is 
subsidized by $44 million by the Federal Government in foregone 
taxes that otherwise they would get from bond holders, and the 
Mets stadium, about $32 million.
    Mr. Kucinich. It is presented as privately financed, but 
the taxpayer subsidy ends up being somewhat hidden because of 
these private letters.
    Mr. deMause. That is just the Federal tax subsidy, mind 
you. That is the amount that their costs are reduced by using 
this Private Letter Ruling. There are, again, other tax breaks 
and other subsidies that raise the public, the State and city 
    Mr. Kucinich. Mr. deMause and Dr. Sanders, would you 
comment on the concept of public purpose? What does that mean 
to you?
    It is obviously a euphemism. How does it work out?
    Mr. deMause. Yes, to me, a public purpose is something that 
has a broad public benefit. You know the primary beneficiary of 
the new Yankee Stadium--let us just take that as an example--
are the New York Yankees. They are going to be reaping all the 
revenue from it, and the public will get to go to games there, 
but they will be paying at the box office for that.
    There was a lot of discussion on the previous panels about 
comparing stadiums and, for example, you know, orchestras or 
museums, and my feeling is that if the Yankees were owned by a 
non-profit corporation and tickets were free on Wednesdays to 
the public, there would be a much stronger case for a public 
purpose here.
    But these are fundamentally private buildings. The lease 
with the Yankees and the Mets says they get all the revenues 
from the buildings. The city will not have access to them to 
use them for other purposes. So they will be owned by the 
public in name, but the public will have no use of it other 
than being able to buy a ticket and go in.
    Mr. Kucinich. Dr. Sanders.
    Mr. Sanders. Yankee Stadium is very clearly what it says it 
is. It is a baseball stadium that serves the purposes and whose 
financial rewards return to the New York Yankees Baseball Club. 
That is a private entity. It is a mechanism for allowing that 
private entity to make rather more money.
    If the city of New York chooses to build a multipurpose 
facility and operate that facility as a true multipurpose 
facility, making it available for a variety of tenants and a 
variety of activities, then we could see a case where that 
might be that we would be talking about a multipurpose 
facility. We are not here. We are talking about a baseball 
    The issue raised in the material from the New York 
Corporation Council goes immediately to the point of whether a 
payment in lieu of tax is, in fact, a general purpose tax 
revenue or amounts to a short term arrangement, particularly 
given the way PILOT payment are defined contractually in New 
York City.
    Mr. Kucinich. Thank you. Thank you, Dr. Sanders.
    Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman.
    Mr. deMause, Dr. Sanders, I want to state what I said in 
the beginning concerning the chairman's interest in this and 
his holding this hearing.
    I greatly appreciate your issue identification and what you 
are saying as a framework from which communities should look to 
in making these decisions. I mean what you are highlighting, 
which I think is incredibly important, is that there are many 
communities that undertake these types of projects that do so 
with inflated expectations and structures and deals that do not 
deliver, and they should be very cautious in undertaking them.
    When the city of Dayton undertook building the stadium 
which we have built, they had first considered a deal for 
building a stadium that I was opposed to and voted against. 
Ultimately, the deal did unwind that would have been a blank 
check by the community and would have resulted in a stadium 
that there would have been speculative performance and the 
community could have gotten stuck.
    The stadium that we did build, it was a different deal as 
you heard Bob Murphy talk about. He spoke about the cap that we 
put on the expenses to the city. In other words, the team took 
the risk, not the community. The community had sources and uses 
on a regional basis that they agreed to.
    The community does have access to the stadium. The city has 
a certain amount of days in which they have access to the 
stadium. When John Kerry came campaigning for President of the 
United States, he campaigned at the stadium, and the community 
came in and assembled in the stadium.
    I tell you the story about the first deal to let you know I 
am not a fan of these, and when I served as mayor, I was not a 
fan of the convention center. But there is an aspect which we 
miss if we look at them solely as a subsidy for the team. There 
is a much broader impact on the community in having these 
amenities that it is very difficult to capture. I notice in 
both of your testimonies and reviews, you don't have.
    One of the symbols for Rome when we look at tourist posters 
is the Coliseum, and there is a reason. It is because it is a 
view of the spirit and the way that people came together in 
Rome in a very public way.
    Mr. deMause, you say that this is just a substitution 
effect in economics, that you are cannibalizing from elsewhere 
in town entertainment dollars. Clearly, we don't have any 
studies that would show in towns where there are stadiums and 
sports facilities, that there is any displacement spending, 
that their movie theaters somehow sell less or the performing 
arts centers or the others somehow have less.
    What was important for my community was we did not have any 
sports facility. We did not have any place for the community to 
congregate. There was no cannibalization because people were 
actually taking those dollars and leaving town. They were going 
to Columbus. They were going to Cincinnati. They were going to 
Chicago. They were going to other places that had an 
entertainment sports option.
    So the one thing I would just like to challenge you with is 
that looking beyond just as you said, Mr. deMause, of there is 
no broad public benefit. I mean you just blanketly stated that. 
That really is not true, and it is not the experience of every 
    Your warnings of what communities should be concerned about 
are important, but to go to the next step without real data 
that can establish that none of the benefits that communities 
say they have are there or that the down sides, as you have 
characterized them, are only present really sells the whole 
thing short as we look to a Federal policy. Mr. Decker was 
saying certainly if you look to communities and what their 
needs are and the ability to make these decisions, that is 
really where we need to look.
    So if you can speak on that, I would really appreciate it.
    Mr. deMause. OK, there are several questions there. Again, 
it is a hearing.
    As to whether there are studies on the substitution effect, 
it is obviously difficult to measure because there is a lot of 
noise in the data. There have been many attempts to do so, and 
I am happy to.
    Mr. Turner. Which is hard to just to say that it exists.
    Mr. deMause. I am sorry?
    Mr. Turner. Which is hard then to conclude that it just 
    Mr. deMause. We can definitely conclude that the 
substitution effect exists because there is a finite amount of 
    Mr. Turner. You can conclude it is something to be 
concerned about, but you cannot conclude its impact.
    Mr. deMause. I am sorry?
    Mr. Turner. You cannot conclude that it has an impact.
    Mr. deMause. You can measure its impact, yes.
    Mr. Turner. I thought you just said that it was not 
    Mr. deMause. No, I did not say it was not measurable.
    Mr. Turner. Well, what did you say?
    Mr. deMause. I said it was difficult to measure, but there 
have been attempts to measure it.
    Mr. Turner. Attempts does not mean that it has been.
    Mr. deMause. There have been attempts. I am not going to 
tell you how to decide how successful they have been, but I 
will give you an example if you will allow me.
    Mr. Turner. Please.
    Mr. deMause. OK, in Toronto in 1994, when there was a 
baseball strike, all of a sudden people were not spending money 
on baseball games. There was an absolute rush in other 
industries such as video rentals, comedy clubs. Everyone else 
reported enormous increases in their business.
    Mr. Turner. Wait a minute. That is when something is 
closed. You can't show by that, that it would have been 
sustained or that it had been taking moneys from those venues 
    Mr. deMause. The assumption is that if people, when given a 
choice to spend money on baseball are spending it on baseball 
and when they are not given a choice to spend money on 
baseball, they are spending it on something else. The 
assumption is, and it seems a valid assumption to me.
    Mr. Turner. When it reopened, did it go down?
    Mr. deMause. May I finish?
    Mr. Turner. Did it go down when it reopened?
    Mr. deMause. May I finish?
    Mr. Turner. Please.
    Mr. deMause. The assumption is yes, it did go down when it 
reopened to my knowledge.
    Mr. Kucinich. I didn't hear that. The assumption is what?
    Mr. deMause. I am sorry. The assumption is that people are 
choosing to spend their money in one of two places, and I am 
happy to send you studies. I don't have them on me, but I have 
them at home. I am happy to send you studies looking at the 
substitution effect.
    I will absolutely agree with you that it is different in a 
city like Dayton than it is in a city like Toronto or a city 
like Washington, DC or New York. If you can cannibalize 
spending from somewhere else, then that is good for you and it 
is bad for Columbus. I am not sure that is a public interest 
from the Federal perspective, but it might be good for Dayton.
    However, I would caution you and other cities that the 
impact is dramatically less than is claimed. So the quote by 
Allen Sanderson, the University of Chicago economist who has 
looked at this, is that you could do better by taking the 
money, the same amount of money up in a helicopter and throwing 
it out the window over your city, and I think that is a point 
well made. Not that you would be going up in a helicopter, but 
that what else could you could you be doing with this money and 
what else could you be doing to improve Dayton and could you 
get a better bang for your buck?
    Mr. Turner. Mr. Chairman, I know it is just the two of us 
if you could humor me for just a moment.
    The difference, in effect, as you heard in the testimony, 
is there is a $250 million development that is planned around 
the baseball stadium in an area where there was nothing in 
addition to two corporate headquarters that have moved in where 
there was nothing. Even if you took the amount of money that 
was spent on the baseball stadium and the amount of public 
money that was spent on the baseball stadium and offered that 
as a subsidy to all the businesses and to the development that 
is there, you would not have attracted this development.
    The people are coming to this development not because of 
the subsidy that could have been offered to them instead of the 
stadium but because of the people that are coming down, the 
hundreds of thousands of people who were not there in this area 
before that are now foot traffic and are there.
    Mr. deMause. If that is true and if you are really 
leveraging the money to create this other development, I think 
that is a great deal. But I think that baseball stadiums and 
football stadiums in particular are terrible catalysts for 
these purposes because of what Joyce Hogi mentioned in her 
testimony earlier. They are dark most of the year.
    So if you were to take the money and put it into something, 
even an arena which can at least be used 365 days a year if you 
have to do something sports, that is generally a better 
investment, if not something else like, you know, new street 
lights or better schools or something else that can be used all 
365 days a year.
    Mr. Turner. Mr. Chairman, as I was saying before to both of 
them and to you, I agree with everything that they say as to 
why we should be concerned and how these deals can be a problem 
and, to some extent, not deliver.
    My concern is in trying to making the points with them, and 
I appreciate, Mr. deMause, your concession of that. It is not 
necessarily true of every deal of every community. There really 
are some, and Dayton could have done a bad deal and it could 
have resulted in a bad community. There are communities that do 
it. There are those who do well.
    Taking a broad brush and then trying to do Federal policy 
is the problem because some are good and some are bad.
    Thank you, Mr. Chairman.
    Mr. Kucinich. In the interest of providing as much time for 
both sides, I have provided my friend with an extra 5 minutes 
because I think that he has a point of view that needs to be 
    Mr. Turner. Thank you.
    Mr. Kucinich. I want to thank the gentlemen for being here 
to answer these questions.
    I think that what we have done today is we have opened up a 
broad discussion of public policy with respect to taxpayer-
financed sports stadiums, convention centers and hotels.
    I think it would be useful for this committee to have some 
followup work that would quantify city by city, project by 
project, the amount of money the project involved, how much was 
taxpayer-financed, how much private financing was in it, what 
the measurable economic benefit was in the community in terms 
of jobs created. Perhaps rank it by the local economies, 
starting with the dates that the projects started and ending 
the construction phase with a general commercial phase 
    I think it would be helpful if we could start to really 
look at some numbers down the road. I know perhaps some of you 
have already done that. We will gather the information and take 
it to a second step.
    Then Mr. Issa, I believe, had raised the issue about the 
campaigns that are presented to the public which assert that 
there will be certain benefits if the public will agree to 
support the plan. So I am interested in acquiring that 
information as well.
    This has been a hearing of the Domestic Policy Subcommittee 
entitled, ``Build It and They Will Come: Do Taxpayer-Financed 
Sports Stadiums, Convention Centers and Hotels Deliver as 
Promised for American Cities?''
    I want to thank Mr. Turner for his presentation.
    Mr. Turner. Mr. Chairman, with your consent, I would like 
my opening statement to be included in the record.
    Mr. Kucinich. Without objection, Mr. Turner's opening 
statement will be included in the record.
    I think that we have had a good discussion here, and we 
will continue.
    Gentlemen, thank you and thanks to everyone who has 
participated in this hearing. The committee is adjourned.
    [Whereupon, at 5:10 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Bruce L. Braley and 
additional information submitted for the hearing record