It has become The Deal That Refuses to Die. Only last week, it appeared that the City of Minneapolis's long-running efforts to redevelop Block E had failed again when it was revealed that investor James Binger, who had committed $10 million to a proposed hotel/entertainment/retail project, had backed out at the last minute. Many members of the city council said that it might finally be time to pull the plug on the developer's rights to the civic sinkhole located across Hennepin Avenue from the Target Center.
But by the time the matter came up for discussion before a joint meeting of three council committees this week--attended by 11 of 13 council members--there didn't seem to be much concern about who might or might not be putting up the cash. The block's would-be developers and their new angel, local advertising exec Lee Lynch, told the council that a fresh group of investors (including Lynch), was being cobbled together to fill the funding gap. Although many members appeared skeptical, Council President Jackie Cherryhomes told her colleagues, "Bottom line, it's a fluid project right now.... If we can't do it now, when can we do it?"
At the end of three hours of discussion Monday afternoon, council members voted to forward consideration of the deal's proposed financing package to the full council this Friday, March 3, setting the stage for what most observers expect to be a very close vote on a deal whose official public price tag stands at nearly $40 million.
Before the $10 million shuffle began, city hall handicappers suggested that the council was ready to narrowly pass the plan being proposed by Chicago-based McCaffery Interests, along with Brookfield Properties US LLC (a subsidiary of Toronto-based Brookfield Properties Corp.) and St. Cloud-based Graves Hospitality Corp. Minneapolis Community Development Agency (MCDA) executive director Steve Cramer is recommending approval of the proposal, which also has the support of Mayor Sharon Sayles Belton.
But last week one city official offered a striking counterpoint to the Block E boosting, cautioning that glitzing up the property will come at a steep public cost. On February 22, City Finance Officer John Moir sent a strongly worded memo to city council members, suggesting that even if Lynch and his allies can raise the $10 million, the deal might spell trouble for taxpayers. "It's very unique, unusual financing that's being proposed," Moir tells City Pages. "I'm not recommending it from a finance perspective."
In a nutshell, the latest Block E blueprint involves a $134 million complex including a 17-screen movie theater, a 256-room Marriott Renaissance Hotel, and 128,000 square feet of entertainment/retail space that ostensibly will be anchored by an ESPN Zone sports bar and might also include a brew pub, a bookstore, and a steak house. Washington, D.C.-based Union Labor Life Insurance Company would provide $56.8 million in financing; Binger's investment was to have leveraged another $23.5 million loan. The developers propose pitching in an additional $3.15 million, (a little more than two percent of the total tab). The rest--$39.1 million, or close to 30 percent--is to be supplied by the public.
Like many city-assisted projects, the Block E plan calls for using tax-increment financing (TIF), a tool that allows the city to subsidize development via the increased property taxes to be generated by the project itself. In most such deals, Moir says, public costs are limited to the amount of TIF a deal can support, almost $20.3 million in the case of Block E. But under the current deal, the finance officer's memo notes, the city proposes to add another $19 million in subsidies through a variety of what he calls "precedent-setting" methods. Among the finance chief's top concerns:
* The city still owes $14.2 million for loans taken out to buy the land and demolish the buildings that once stood on the block, including a $7 million balance on a federal Community Development Block Grant. Moir says the money "must be repaid," and that the current plan provides no mechanism for doing so.
* Minneapolis collects a three percent tax on tickets, food, drink, and merchandise "sold in public places during live performances," as well as on short-term lodging. Normally, Moir's memo points out, that money goes straight into the city's general fund; but the MCDA and McCaffery have hammered out a deal to earmark more than $4.6 million in projected taxes from Block E's entertainment venues to pay for the development. The memo warns that the diversion would result in "lost revenue to the City General Fund every year for 25 years."
* Moir's memo also sounds a note of caution for city taxpayers: "The proposed finance plan puts further stress on balancing the [city] budget and increases pressure to raise general property taxes higher than they would otherwise be." Taxes for residential taxpayers are likely to increase anyway, Moir adds, as a predicted office-space glut drives commercial property values down.
* Finally, according to Moir, the Block E plan could make it more expensive for Minneapolis to borrow money in the future. "By increasing the City's overall level of indebtedness without growing an off-setting amount of general tax base," his memo states, "at some point in the future the City's AAA rating will be downgraded."