State tax cuts mean the arena doesn't pay for itself -- and take funds dedicated for neighborhoods
Like the goose that stopped laying golden eggs and squawked for more feed, city-owned Target Center is chomping away at dedicated funds for the Neighborhood Revitalization Program at a time when such funds are
Target Center's math is straightforward. Before 2001, the arena paid for itself from real-estate taxes, a 3 percent entertainment tax on building events, city parking fees and $750,000 annually from the state.
However, in 2001, the state slashed property tax rates. Suddenly, Target Center's main tenants -- the Minnesota Timberwolves and Northwest Health Clubs -- paid $1 million less per year. The state-funded Xcel Energy Center also opened in St. Paul, forcing Minneapolis finance officials to scrub about $10 million in projected entertainment-tax increases over 20 years off their spreadsheets.
All told, the city now has about $1.6 million less per year than it needs to pay its Target Center mortgage. In 2001, there was a $2 million surplus in the city's Target Center fund; this year, there's a $1.2 million deficit -- money that must be found someplace else.
That somewhere, more or less, is NRP-- originally designed to get property taxes from Downtown redevelopment out to the neighborhoods.
When the city created NRP in 1990, it dedicated redevelopment property tax proceeds to the program. However, city finance director Pat Born says the city is obligated to pay off bonding debt first -- so if Target Center's mortgage is short, it leaps ahead of NRP.
That's a double-whammy for the popular neighborhood program. The same state tax overhaul that busted Target Center's balance sheet also took a bite out of NRP-dedicated funds. Since 2001, city officials have cut NRP's $20 million-per-year to $11 million; now, Born estimates, there's about $3 million per year dedicated to NRP -- after Target Center takes its $1.6 million.
There's a tempting solution to this debt spiral: get Target Center's private tenants to pay more. However, Born says that's nearly impossible -- and not because Timberwolves owner Glen Taylor would probably refuse.
Born says that the city can't take private funds and keep tax-free status for Target Center's bonds. If Minneapolis accepted any contribution from Taylor, Born said the city would have to pay $25 million to convert to taxable debt.
The financial squeeze could get worse if the state eliminates its $750,000 annual contribution. The money was originally promised in the mid-'90s because tax law prevented the Metropolitan Sports Facilities Commission from owning the building. However, subsequent legislatures can cancel the payment -- and facing a $4.5 billion projected state budget deficit by 2005, that's a temptation.
Councilmember Scott Benson (11th Ward), who chairs the council's Intergovernmental Affairs Committee, said, "We have to remind them that, especially with the state's complete funding of Xcel, it's important for them to keep their promise to support us."
If the state money goes away, it means more city community development dollars may flow back to the arena.
Despite Target Center's debt problems, the city is bound by its lease to keep the building up-to-snuff. It currently appropriates $500,000 per year for improvements and is obligated to buy one new scoreboard between now and 2025, according to Minneapolis Community Development Agency senior project manager Phil Handy. Xcel's scoreboard cost $4.5 million, according to that arena's officials.
The financial pressures help explain why Minneapolis leaders haven't agreed to re-do seats, build new suites, construct a new restaurant, and make acoustical changes that Target Center's tenants and concert promoters seek but the lease does not require.
Councilmember Lisa Goodman (7th Ward) suggested in the StarTribune that the city sell Target Center to Taylor and get out of the $75 million arena debt. However, Born said, Taylor would have to pay as much as $80 million because of promises to current bondholders, and spend unspecified millions more to buy out arena manager Clear Channel before he could begin funding desired improvements.