St. Paul was perhaps the most dishonest place in America in 1932, a period captured by Steve Thayer's classic novel Saint Mudd.
Under the "O'Connor System," named for police Chief John J. O'Connor, gangsters like John Dillinger and Ma Barker were given safe haven in return for not openly flouting local laws and sensibilities. It worked for a while.
The Saint Paul Port Authority was born that same year in a glow of civic pride. The goal was to refurbish Mississippi River terminals and restore the city's import as the headwaters of commercial navigation.
Over the years, its purview would grow to developing industrial sites and turning neglected and polluted areas into job-producing engines. Backers sold tales of progress.
But it remained a largely hidden force. Using special powers granted by the Minnesota Legislature, the Port Authority worked under the radar, handling projects St. Paul's leaders and business titans preferred to shield from scrutiny.
The public and media cared little, as long as it produced.
"We basically keep the Port Authority around to do the dirty things we don't want the public to think about," says former Councilman Tom Dimond.
Savvy mayors always knew where to turn to quietly tackle sticky affairs. So it's no coincidence that Mayor Chris Coleman chose the Port Authority to play a key role in building a new professional soccer stadium.
Leading the charge for the Minnesota United is Bill McGuire, a former UnitedHealthcare CEO who agreed to a record $468 million settlement to avoid federal prosecution in an illegal stock options caper.
Protecting St. Paul will be the Port Authority. But given its legacy of suspicious deals, this might be a good time for residents to study history and hide their wallets.
The Port's golden years ran from 1960-1980. The agency rolled over poor riverfront neighborhoods like the West Side Flats to create industrial parks and other development. It was hailed for its success in creating jobs.
But with success came quiet pressure from city leaders to enter risky deals that conventional bankers were loath to touch. High profile projects such as hotels and shopping centers like Galtier Plaza and Bandana Square sprang up under Mayor George Latimer.
They were financed by something called the 876 Fund. This mega-bond fund created by the Port attracted investors by using safer Port properties, such as Mississippi riverfront warehouses, as collateral.
By the late '80s, the fund was in trouble. Real estate and retail lemons were withering across the city. Port-funded projects were going belly up.
"It wasn't a very pleasant time, with a lot of projects being foreclosed," recalls Perry Feders, the Port's chief financial officer through most of the 1980s. "I think what happened was that people... saw it as a good way to develop things other people weren't interested in."
In 1991, the Port chose to dissolve the fund, citing $51.5 million in losses. Investors stood to lose most of their money. At the same time, Feders would later testify, the Port began to quietly alter leases to shelter property that was supposed to serve as collateral.
Some 2,700 investors sued in a case that would drag on for years.
Soon, the Port created a new subsidiary, Capital City Properties, which was used to hide millions of dollars in assets that should have been used to repay investors, alleges whistleblower Patrick Dean.
"There used to be jokes about hiding the pea under the shells," says Dean, a Port vice president from 1993 to 2006. "But I didn't realize how bad it would get."
Dean's breaking point wouldn't come till years later when the St. Paul Radisson Hotel and other properties were sold for approximately $10 million. The proceeds were diverted to Capital City Properties rather than used to repay investors.
"I said, 'Holy shit! They're going to steal this money!' As a CPA, I couldn't stay quiet."
Dean went to his supervisors and the Port Authority Board. It didn't go well. A termination letter dated July 11, 2006 noted his "active refusal to abide by financial decisions and actions of the Port Authority," and "unsatisfactory job performance since March of 2006."
It further noted that Dean refused a severance package, which would have required his silence. After 19 years at the agency, he was fired, losing his pension and retirement health benefits.
But he was not one to go quietly into the night. Dean says he took his story to high-ranking state officials, both Republican and Democrat. The Minnesota Auditor's Office declined to investigate while the matter was in court.
Yet investors' lawyers were happy to listen. The case would eventually go to the Minnesota Supreme
Court, which essentially found that the Port Authority's actions had violated basic investor rights.
"If you can do that, you no longer have contracts," says investors' attorney Keith Broady. "Who's going to buy the next bond from the Port Authority?"
It had taken 20 years, but the handwriting was on the wall. In 2011, a settlement was reached. The Port agreed to pay investors $45 million in installments until 2032, though it would admit no wrongdoing. The deal would keep the agency starved for cash over the next two decades.
Port President Louis Jambois, who retired last month, inherited these problems when he arrived in 2008. He repeats the official line that nothing "untoward" happened and called the settlement a "mutual agreement that I'm very pleased we're able to put together."
Dean scoffs at that argument.
"I know they paid out at least $30 million more than they expected to," he says, a figure confirmed by Broady. "They've been scrambling ever since to keep their big staff employed and pay the overhead costs.
"But maybe they did win," he adds upon reflection. "...A lot of people go to jail for the type of things they did."
Questions didn't go away as the Port's Capital City subsidiary continued to stretch its tentacles into new projects with little or no public scrutiny.
Capital City's board meets irregularly and often for less than five minutes. Meeting minutes tend to but briefly describe transfers of public funds between the two organizations and private business partners. The corporation claims exemption from federal and state tax returns.
Yet its nonprofit status was revoked in 2011 after Capital City failed to file returns for the three previous years. Jambois expressed surprise when told of the IRS' action, which apparently also escaped the scrutiny of the Minnesota State Auditor and Attorney General.
Over the years, Capital City has continued to describe itself as a nonprofit in the media, as well as in applications for federal funding. One application netted brokerage rights to $49 million in tax breaks, to be used to attract investors to low-income communities. The windfall allowed the Port to collect at least $1.7 million in administrative fees.
That lifeline may now be gone. In 2014, the feds rejected an application for another $50 million in tax credits, though the Treasury Department won't explain its refusal.
The Port now argues the IRS simply made an easily corrected mistake in yanking Capital City's nonprofit status, and that the agency is not required to notify others of the ruling.
IRS Spokeswoman Karen Connally wouldn't confirm whether a review is underway. But she pointed to
the agency's website, which continues to show Capital's nonprofit status as revoked.
Either way, Jambois is proud of his agency's ability to bring more public funding to St. Paul projects, describing it as a "win-win." In the meantime, the Port appears to be angling with the Legislature for greater powers of secrecy.
A bill authored by Rep. Tim Mahoney, a DFLer from the East Side, would remove the City Council's potential oversight of Port staff and bonding decisions. Mahoney says he's merely trying to make the Port more efficient and clarify its independence as it seeks outside funding and contracts.
"Basically it's just getting rid of an extra step of taking it back to the City Council." The bill would also insulate the city from legal action against the Port, Mahoney says.
Yet the Port's $45 million settlement suggests the need for greater public inspection.
"It all comes from public taxpayers of one sort or another and is being implemented generally by people who aren't elected," Dimond, the former council member, says. "Sometimes it can be a crazy deal for the city and it still suits the Port Authority."
In 2014, it was matter-of-factly announced that the Port was turning over the $3 million Midway Stadium site to Capital City for a mere $1. The plan was to partner with the Pohlad family's United Properties in building and hopefully sharing the profits of an office-warehouse operation.
Stunningly, there was no effort put the land up for sale to the highest bidder, even after another $2 million in public money was put into environmental cleanup and improvements. There were no public requests for proposals or interviews with other potential partners.
The media did little to question the deal, save for the Minneapolis/St. Paul Business Journal. It wrote about United competitors who considered Midway a hot property, but were frustrated by not being allowed to offer their own proposals.
"It's a great site," said John Allen, owner of Industrial Equities, which develops offices and warehouses. "We would have had interest in it and liked to be considered, no doubt about that."
He praised Port staff, but questioned the decision to forgo open bidding.
"Competition is always a good thing.... There was a level of disappointment that we didn't have an opportunity to bid on the project."
Jambois claimed the deal was perfectly legal, since the Legislature has granted the Port exemptions from state open bidding laws. Unmentioned is the considerable downside: Should the project run short of cash, the Port will have to pony up even more public money, or risk diminishing its stake in the project.
"It is unusual," Jambois concedes. "It's very unusual. But it's worked very well for us over the years."
The Port has four other joint-venture deals like this. Developments such as Westminster Junction and River Bend business parks both turned polluted and under-used riverfront land into small businesses and light manufacturing centers, providing hundreds of jobs.
But critics suggest that no-bid deals tend to benefit well-connected developers, and have a way of sucking up public funds well into the future.
Riverbend, for example, was built using tax increment financing (TIF) loans, which are repaid from developers' regular tax payments for city, school, and other governmental services. It's now far behind on its payments. Though Westminster has done somewhat better, it too remains behind.
The Port Authority now has 13 projects built with such financing, which is theoretically supposed to expand the city's future tax base. But the complexity of these deals often makes it difficult for bean counters, let alone Joe Public, to track whether TIF investments are really paying off for St. Paul residents.
In a 2012 email, Port CFO Laurie Hanson expressed concerns that reported TIF proceeds from the Riverbend project did not appear to match city tax records. "We are finding unusual variances in all of the TIF districts," she wrote, though no resolution appears in any following correspondence released by the agency.
Such discrepancies are of serious concern in St. Paul, where nearly 10 percent of commercial property is in a TIF district. Throw in its large number of government and nonprofit properties, and there's a limited tax base to fund city services.
"That's one of my real concerns," says Lowertown real estate investor John Mannillo. He worries that the same mistakes keep being made behind closed doors. "We've done too many things that aren't sustainable. ...It's hard sometimes to even find out what's going on."
"The city has turned over tremendous assets for a dollar," adds Dimond, alluding to the Midway Stadium deal. "It lines their pockets at the expense of the taxpayer and private investment. You can make the case that one of the things most undermining private development in St. Paul is the Port Authority."
The Diamond Products site in Lowertown had been a thorn in the city's side for years until Mayor Coleman began describing visions of a baseball stadium. An empty factory was left on a site that had housed coal dust and industrial products since the days of railroad baron James J. Hill.
Private redevelopment had been foiled, at least in part by fears of pollution and unstable soil that would make new construction difficult.
Nevertheless, the Port Authority bought the site for $3 million in 2012. In what was supposed to be a simple plan, it would be swapped for Midway Stadium and serve as the new home for the St. Paul Saints.
But behind-the-scenes scrambling began almost immediately. The city was hoping to attract matching funds from the state. Gov. Mark Dayton was known to look favorably on the ballpark, but St. Paul leaders feared a pricetag higher than $54 million might kill their chances.
The city knew it couldn't make that work. While St. Paul officials were publicly promising to build the stadium for $54 million or less, they were privately doing spreadsheets showing realistic costs up to $65 million.
"The current working assumption is that we have to get the entire project done for $54 million," warned Planning & Economic Development staffer Martin Schieckel in 2012. "As you can see we are well above that number, even without the land cost."
Still, the city applied for state funds using the figure it couldn't achieve. A September 20, 2012 email from Parks & Rec Director Mike Hahm and chief planner Jodi Martinez, sent to Mayor Coleman and then Deputy Mayor Paul Williams, now a Port Authority Board member, noted that "the project cost estimate remains at approximately $60M."
Something had to give.
With construction well underway in 2013, the city decided to break the news: The ballpark needed an extra $8.8 million. Officials claimed to have recently discovered "bad soils," which greatly elevated the costs.
The supposed revelation should have been an embarrassment to the Port Authority. It was responsible for studying the site before the land was purchased. At the same time, it was also sheepishly explaining the discovery of unexpected "bad soil" issues at the Midway Stadium site, driving up the costs there as well.
Yet instead of being castigated for incompetence, the Port was greeted as a savior in City Hall emails. Its expertise was raising money for environmental cleanup, and the sudden discovery of cost overruns provided a need for that skill.
"We have a long history of maximizing asks," Jambois jovially noted in an email exchange with the mayor's office. Ramsey County and the Metropolitan Council were soon kicking in extra money.
It wouldn't be enough. The city made further cuts to its Parks Department, which was already closing rec centers and programs in mostly poor neighborhoods. It also borrowed money.
Nonetheless, Coleman now regularly describes the stadium as an unqualified success, a model of civic progress and economic development.
St. Paul's downtown Macy's closed in 2013. It left a black hole at a highly visible location.
The original line out of City Hall had been one of optimism and faith in the private market to rejuvenate the site.
"What I can tell you is there's been larger than average interest in the property," Coleman spokesman Joe Campbell told the Pioneer Press. "With the amount of public investment that exists around it — including the light-rail line — it's a property that will be attractive to developers."
But a deal between Macy's and a San Francisco developer fell through mysteriously. Emails suggest that ill feelings between the mayor's office and Macy's soon followed, complicating efforts to sell the building privately.
Enter the Port Authority.
Staff emails suggest the project wasn't enthusiastically welcomed. With a plethora of physical problems inside an aging, fortress-like shell, Port staff began comparing it to a brownfield. Demolition was estimated at $16 million.
Jambois suggests there were fears someone would buy the structure and convert it into a parking ramp or cold storage in the middle of downtown. So the agency intervened at Coleman's request.
The $3 million pricetag was only the beginning. Within months, the building had bled the Port another $1 million for everything from safety upgrades to architectural redesign fees, with only revenues from a small parking ramp to offset them.
A sense of black humor soon appeared in Port emails. "The albatross may be leaving the nest," wrote lead staffer Monte Hilleman in one hopeful reference to a deal last spring. It too fell through.
With optimism running low, the Port fell back on a familiar approach.
Last September, the site was deeded over to Capital City for $1. Capital then created a partnership with Oppidan Investment. If the deal is concluded, plans call for a Walgreens and a practice rink for the Minnesota Wild that would ideally spur other tenants to fill up the rest of the building.
To sweeten the pot, the city threw another $11 million in tax benefits at the deal. Coleman termed it "terrific news and further evidence of momentum downtown."
But St. Paul's investment was now $15 million. And it will only have a 10 percent share of future profits from the partnership to recoup that money.
The Midway soccer stadium presents the prospect of deja vu all over again, as Yogi Berra would say.
Coleman and McGuire are in the midst of a PR blitz to promote a $120 million, 21,500-seat facility generously paid for by Minnesota United. Swooning media accounts describe design images of flowing water and twinkling stars.
The proposal originally promised to bring major league soccer to St. Paul without direct cost to taxpayers, other than turning over an unused former bus garage as a site.
That promise has quickly fallen by the wayside.
The City Council rushed to approve $18.4 million for infrastructure and environmental cleanup — without waiting for final recommendations from a ballyhooed citizens' advisory process or even concluding basic research.
The vote came before St. Paul conducted an environmental impact study of the site. Also missing is a transportation study showing how the already congested Snelling-University intersection will handle huge surges in traffic.
With no new parking garages planned, Coleman suggests that half the fans will use the Green Line, while the remaining 10,000 will apparently scramble for parking in the surrounding neighborhoods.
The council refused to even delay the vote by a week to allow an independent analysis of the deal. This despite the fact that it was going into business with McGuire, a man whose 2007 stock dealings were so egregious he was banned from running a public company for 10 years.
It only gets worse from there.
The deal gives McGuire naming rights to the stadium and control of plazas and public areas, issues that have already proved controversial with the new Vikings stadium.
Another red flag is contract language suggesting the city is committed to millions of dollars more for roads, parking lots, and other infrastructure in the surrounding areas.
Though only rough plans have been released, council supporters talk of a "world class" redevelopment for the area, including parks, bikeways, restaurants, a movie theater, housing, and commercial development.
Exactly how and when that will happen is unknown. City officials admit they have no actual commitments from private investors — although McGuire and United Properties have made their interest known.
Council President Russ Stark confesses it's "a bit of a gamble" to assume the stadium will stimulate long-awaited redevelopment in the area. History shows that using stadiums to kickstart development has been a resounding failure most everywhere it's been tried.
Seemingly forgotten is that, just a few years ago, city officials were getting plenty of redevelopment interest in the Snelling and I-94 corner from big-box developers like Home Depot and Best Buy. Now the deal with McGuire requires that the stadium site be permanently tax-free.
St. Paul's legislative delegation is being urged to push through the property and construction sales tax exemptions for the stadium no matter what the political cost. To achieve it, some Capitol insiders fear funding could be endangered for projects like the Kellogg Avenue Bridge reconstruction, Como Zoo additions, or state property tax relief for homeowners.
In a familiar pattern, the Port has been picked to handle the estimated $6 million environmental cleanup for the site. Along with the city and Met Council, the Port initially tried to keep secret its negotiations to buy the MTA bus barn site, a violation of state public records laws. Only public exposure and embarrassment ended that maneuver.
The Port is expected to play a major role in the deal, especially in developing land around the stadium. The affable Jambois agrees the agency's ways can seem complicated, but he rejects the notion that it's operating in secrecy.
"Our board meetings are open, our minutes are public, we have a website," he said. "The average Joe has no trouble figuring out what we do if they ask us."
But even board members struggle to explain the agency's activities. City Councilman and Port Authority Board member Dai Thao had trouble answering questions about Capital City, joint venture programs, and other operations. "I'm very new," he said of his 10-month tenure, referring questions to Port staff.
Meanwhile, board member and City Councilman Dan Bostrom suggests some secrecy is required in attracting businesses under sensitive and competitive conditions. The Port, he says, has done wonders with projects on the East Side. But he acknowledges that secrecy hasn't helped deal with problems like the bankrupt bond fund.
"It's been a nightmare to get out from underneath."
Asked whether that history might be repeated, he responded cryptically. "We hope not. But sometimes you can't control everything. You have to look at where the pressure comes from for us to do things."
Finding answers to those questions isn't getting easier in St. Paul. Late last year, City Hall announced new six-month time limits on keeping emails and other documents available for public viewing. It essentially rules out access to many of the documents cited in this story.
"The public is generally not aware of any of these things and the media really doesn't cover it," says Dimond. "We need more daylight."
But that daylight won't be coming from the mayor's office. When questioned about the Port's role within the city, spokesperson Tonya Tennessen responded with a short statement:
"St. Paul's partnership with the Port Authority is critical to the continued momentum and vitality of our city. One need only to look at cities like Memphis — with mile after mile of burned out industrial areas — to recognize how invaluable an effective Port Authority is."
The Port Authority will hopefully celebrate victories benefitting the whole of St. Paul this year. Included may well be the opening of the former Midway Stadium development. If so, there will likely be toasts to United Properties' 100th year of operation since being formed as the real estate wing of Hamm Brewing.
A few may also remember it was in 1933, just after the Port Authority was formed, that family patriarch William Hamm was kidnapped off the streets of St. Paul in broad daylight by Creepy Karvis' gang. They got away with it for a while. But the public outcry eventually brought down the O'Connor System of organized crime in the city.
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