The following guest commentary by Former Governor Arnie Carlson and Former City Council Member Paul Ostrow was published in the September 7, 2014 issue of the Star Tribune.
Vikings stadium funding plan should be formally reviewed
Can we make lemonade out of a lemon?
Article by: Arne Carlson and Paul Ostrow
All too often, the human tendency is to compound one big mistake with a series of additional mistakes in the hope that somehow the results will improve. This appears to be the case with the Vikings stadium.
Minnesota has considerable experience in putting together partnerships involving government and the private/nonprofit sectors. This includes not only the arts but sports teams as well. We do this because it is part of our quality of life.
The most recent example involved the Twins stadium. Regardless of one’s philosophical views, we generally agree that the process was open, well-understood by the public and professionally managed. Sadly, the opposite is true with the Vikings stadium. It has been plagued by a high degree of secrecy, too little professional planning, a lack of due diligence and financial analysis, and an overdose of misleading propaganda. The bottom line is that the sizzle of the project should not blind us to the financial realities.
It is important to formally review, and potentially reopen, the current financial arrangement.
The original responsibility of the Vikings totaled some $477 million. Recent cost increases have pushed that into the $525 million range. The team’s funds have come from an NFL loan — $150 million, $50 million grant from the NFL, a “seat license fee” valued at more than $100 million, and a private loan in the $250 million neighborhood.
Of this $550 million, the NFL loan will be paid off with revenues from the team’s operating income generated by TV, advertising, ticket sales, the sale of merchandise, etc. The $250 million personal loan largely disappears with the execution of the naming-rights agreement, which is expected to generate anywhere from $200 million to $400 million. That leaves $100 million-plus generated from the sale of seat rights, which is paid for entirely by the fans.
On the government side, the state is issuing $462 million in general-obligation bonds plus a prepayment of $36 million. According to the governor and legislative supporters, this obligation was to be paid for with electronic pulltab revenue that now appears to be largely fictional. Nevertheless, the promise was repeatedly made that this “people’s stadium” was to be funded “without using a single dollar of general fund tax revenues.”
In May 2013, those promises vanished when the administration brought to the House-Senate Conference Committee its “secret plan” to fund the stadium. Essentially, the plan dedicates $20 million annually from the general fund over the next 30 years for the purpose of paying off the bonds. This provision did not receive any public hearings, public notice or public vetting. As Jon Tevlin of the Star Tribune noted, the “stadium deal was as transparent as the Berlin Wall.”
Minneapolis’ financial contribution to the stadium and related infrastructure costs is $150 million plus $62 million in general obligation bonds for the purpose of building adequate parking spaces and providing public open space for the stadium. Current proposals would provide team owner Zygi Wilf with 1,400 free parking spaces in a publicly funded ramp for all Vikings games and potential pro soccer games. Published reports also indicate that for up to 118 days “The Yard” will be available rent-free to Vikings ownership for revenue-generating activities, including dispensing alcoholic beverages. Further, both the city and state are required to share equally in putting $3 million per year over the next 30 years for capital improvements.
The financial mechanisms to be used in an attempt to pay off the property tax supported bonds are so complicated that the city’s finance office has 60 different scenarios as to how the city will pay off the bonds. Even Rube Goldberg would marvel at this creative financial pretzel.
Unfortunately, this is what happens when elected officials make a poor decision without a proper level of understanding, then instruct professional staff to “make it work.”
It should be painfully obvious that our elected leaders failed to properly protect the public’s interest and that as more details become public, the criticisms will escalate and cast a long shadow over this project. We must recognize that unless public leaders act now, the out-of-control costs to the taxpayers will continue to worsen for the next 30 years.
Now is the appropriate time to turn this around as best we can. Toward that end, we would advance this bipartisan proposal:
1–That the funds derived from the seat tax ($100 million-plus) be placed under the control of the Minnesota Sports Facilities Authority. Specifically, the authority would be charged with (a) building and funding the parking requirements for the needs of the stadium users, and (b) buying and operating the “park.”
In essence, these funds would substitute for the public funds now involved in those projects. It is inexcusable for income derived by a seat tax paid by seatholders to be considered a “contribution” from Mr. Wilf.
2–That the Minnesota Sports Facilities Authority be reconstituted with the immediate appointment of new leadership that possesses the background, stature and community commitment that this project sorely needs. Two outstanding business leaders come to mind: Ralph Burnet of Coldwell Realty, a top-flight manager and entrepreneur, and Jim Graves, who has a superb background in development and finance. As an added bonus, they come from competing political parties.
It is also imperative that a new commission reflect all the professional skill sets necessary in order to better advance the public good.
3–That the Sports Facilities Authority be governed by all rules pertaining to open government and conflicts of interest. All too often, those with oversight responsibilities tend to become cozy with those they oversee. This means no meals, no free tickets, trips, etc. The public’s interest must be totally paramount.
4–An immediate review by the state auditor for the purpose of determining the full extent of the financial arrangements made by the city with the Vikings. It is hard to understand how the city can maintain that it is abiding by the $150 million spending limit imposed by the state when it already has committed $150 million in the original deal and another $61.9 million in the bond issue for the ramp and park. In addition, there are contingency expenses including the Minneapolis Park and Recreation Board’s estimate of up to $3 million annually for maintenance of the park.
5–That the attorney general review that part of the legislation that grants Wilf exclusive rights over Major League Soccer use of the stadium. How can this be a “people’s stadium” when one person can decide whether or not an MLS soccer team can play there? In essence, this appears to be a restraint of trade in that it practically gives Wilf exclusive rights to a soccer team. How could the governor and Legislature possibly approve of this?
These recommendations are not harsh, but are simply common sense. Any examination of the numbers will reveal that Wilf very likely has less of his own money in the deal than the monetary damages ($85 million) ordered by a New Jersey court for “ fraud and civil racketeering.” It is imperative that the public bleeding stop and that the true financial benefactors put some real money in their own project. Remember, Forbes estimates the current value of the Vikings to be $1.15 billion. Not bad for an original investment of an estimated $600 million.
It is truly our hope that the appropriate leaders, starting with the governor, will recognize the seriousness of the potential damage. An unfair allocation of public resources means less money for basic governmental services, including education and transportation. But it will also take funding from urgent needs — the elimination of teenage homelessness or training our citizens for the jobs of the 21st century. Finally, and perhaps most critically, failure to take these basic steps would further damage the already frayed confidence our citizens have in our public institutions.
Clearly, it will take political courage, but isn’t that the real test of public leadership?
Arne H. Carlson was governor of Minnesota from 1991 to 1999. Paul Ostrow was a member of the Minneapolis City Council from 1998 to 2009, serving as council president from 2002 to 2005.