Why should taxpayers have to pay for new stadiums?

The death of HB 2663 in Kansas, which aimed to create new Sales Tax and Revenue (STAR) Bonds and Tax Increment Financing (TIF) districts for financing new sports stadiums, has reignited critical debate about the role of public funding in private projects. 

The bill also provided 100% financing for 30 years to attract the Kansas City Chiefs or Royals to new stadiums on the Kansas side of the KC Metro area. This follows after 58% of Jackson County voters wisely rejected a $2 billion subsidy for similar developments, highlighting a disconnection between rent seekers and the electorate’s preferences.

These initiatives exemplify a deeper issue with economic development strategies that lean heavily on corporate welfare, undermining the principles of free-market capitalism that has long-supporting abundant prosperity. While Kansas ranks just 26th in its state business tax climate according to the Tax Foundation and 27th in economic outlook according to the American Legislative Exchange Council, picking winners and losers is the wrong approach.

Stadium subsidies are intended to attract teams, showcasing the immediate allure of new facilities and jobs—the ‘seen’ effects. Yet, the ‘unseen’ consequences, including diverting substantial public funds from better uses and imposing long-term fiscal burdens on taxpayers, are far more concerning. 

Instead of acting as a neutral facilitator of economic activity, governments too often play favorites through these tax incentives, leading to market distortions and cronyism. The implications are significant: businesses spend more time lobbying for these financial boosts than focusing on consumer-driven growth and innovation.

Milton Friedman famously criticized such government spending, stating, “There is nothing so permanent as a temporary government program.” In this context, the subsidies intended to be a short-term boost can lead to prolonged financial strain on public resources.

Historically, STAR Bonds have fallen short of their promise to boost the commercial, entertainment, and tourism sectors. Despite using them for over two decades, these bonds have not elevated consumption in Kansas’s tourist-related sectors above the national average. Over a decade, tourist-related spending has notably declined, falling 20 percentage points below what might be expected compared to other states. This stark underperformance underscores the inefficacy of STAR Bonds in stimulating genuine economic growth.

Moreover, the promise of job creation through such subsidies is often misleading. An analysis by the Kansas Policy Institute of Wichita’s Riverwalk and K-96/Greenwich STAR Bonds demonstrated that these projects did not spawn new employment but merely shifted jobs within the eastern side of Wichita, let alone the state. This job redistribution, rather than creation, suggests that such fiscal tools are not just ineffectual but harmful, as they concentrate development in ways that don’t align with the broader community interests.

As manifested in STAR Bonds, corporate welfare fundamentally distorts the free market. It prompts businesses to seek profitability through government aid rather than market-driven innovation and efficiency. This misallocates precious resources and dampens the entrepreneurial spirit, crucial for real economic progress.

Of course, many Kansans support the Royals or the Chiefs. These sports teams are part of the community and should be celebrated. And yet, they’re private businesses, and subsidizing their operations from the paychecks of someone in Edwardsville or Ellis County hardly seems appropriate. No matter how much you may cheer for Salvador Perez hitting a homer or Patrick Mahomes throwing another touchdown, these subsidies are no different than spending your paycheck to entice a battery factory in The Sunflower State and should be avoided altogether.

Milton Friedman argued that the government’s role should not be to determine economic winners and losers but to facilitate a stable environment that supports voluntary exchanges and organic growth. Therefore, policies should aim to reduce government expenditure, lower tax burdens, and ease regulations that impede business operations, fostering a climate where businesses can thrive on their merit.

Moreover, funding these projects involves increased taxes or reallocating municipal funds, burdening local economies. The long-term financial commitments can lead to higher taxes elsewhere or cuts in essential services. Studies, such as those by the Brookings Institution, consistently show that stadium subsidies do not significantly increase local tax revenues or long-term employment growth. Instead, they often serve as handouts to billionaires at the expense of ordinary taxpayers.

Despite its setbacks, the rejection of HB 2663 should be viewed as a protective measure against the continuation of flawed economic policies. It affirms commitment to market efficiencies over flashy, unproductive government expenditures. Policymakers must focus on long-term, sustainable strategies that benefit the wider population. 

With a special session looming, the idea of legislative-enacted, taxpayer-subsidized stadiums could still be alive in 2024. It’s troubling that while HB 2663 never got traction, the legislature actively removed oversight from some state incentive programs. 

Kansas must continue challenging economically unsound proposals and advocate for policies that lower business costs through reduced government spending, lower taxes, and less regulation. By promoting a more free-market environment, the state will ensure long-term economic health and prosperity for all Kansans, not just a select few.

Vance Ginn – Kansas Policy Institute

Vance Ginn, Ph.D., is a Senior Fellow at Kansas Policy Institute, Chief Economist at the Texas Public Policy Foundation, and Policy Director for the Foundation’s Alliance for Opportunity campaign, a multi-state poverty relief initiative. Vance formerly served as the Associate Director for Economic Policy of the White House’s Office of Management and Budget, 2019-2020.