Friday, December 9, 2016

Open Letter to Mayor Betsy Hodges & Mpls. City Council on US Bank Stadium, Downtown East

December 7, 2016

To:                    Mayor Hodges and Minneapolis City Council Members
From:               Arne H. Carlson and Paul T. Ostrow
Re:                   US Bank Stadium and Downtown East

We are submitting these written comments to the public hearing prior to the consideration of the 2017 budget.  Although the issues set forth in our letter are not technically addressed in the budget nonetheless the long term financial ramifications of your inaction and the inaction of other levels of government to restrain increasing subsidies to the stadium and the Vikings ownership will have a long term impact on your ability to address the urgent needs of your residents.   You have the authority tonight to begin a process to rein in these unlawful and inappropriate city expenditures by directing your staff to return to you early in 2017 with a detailed assessment and further directing a public hearing be scheduled to ensure full disclosure of these issues.

As you may know, we are deeply troubled by the highly questionable practices employed by government as it relates to the financing of the US Bank Stadium. Our experience in government has taught us that private-government projects are not only complicated but pose considerable risks to taxpayers particularly when the partnerships involve debt and multiple conflicting interests. That is precisely the case with the stadium and the attendant city project known as Downtown East.
This risk can be minimized when governments establish protocols that stress thorough and professional analysis, exhaustive and comprehensive public hearings and ongoing transparent oversight.

The opposite has been the case on the state as well as the city level. And sadly the efforts to keep the public fully informed have been stifled. Governor Dayton’s refusal to reappoint John Griffith to the Minnesota Sports Facility Authority on the grounds he has caused “friction” on the board is all too typical of this attitude of smothering dissent.  Similarly, the City’s ongoing refusal to publicly address the issues raised in this letter and in many previous communications is a dereliction of your fiduciary responsibilities to the Minneapolis taxpayer.

Further, we will do all in our power to remove all barriers designed to hinder the public’s right to know. That is why this letter is public.  We are seeking your help as Mayor and City Council Members as you are the elected officials responsible for protecting the financial health of the City and residents. It is imperative that all the issues involved be made public as the public has a right to know that is critical to the next election debate.

Most of you opposed any public subsidy of the Vikings stadium either in your role as Council Member or for some of you in your election campaigns.  Despite your started opposition to the stadium project you have been unanimous in your support of the Downtown East project and have been unanimous in your refusal to raise any of these troubling issues through the Council’s committee process.  However, what is important here is that you either are or need to be intimately familiar with both projects and will be compelled to explain all aspects of this development, the Commons and the City’s subsidies to the stadium project and infrastructure to voters this coming election.

Governor Mark Dayton and legislative leaders of both political parties often declared that the Vikings Stadium would be the “People’s Stadium” and pledged that it would be built “without using a single dollar of general fund tax revenues.”  Toward that end, they negotiated and presented a bill to the legislature in 2012 that they argued would accomplish those goals. It involved the sale of bonds in the amount of $462 million with $36 million up front.

The subsequent law contained provisions that limited the State’s participation as well as the City’s.  Minn. Statutes Section 473J.11 restricts the state’s share to “$348,000,000” and the city of Minneapolis to $150,000,000. Further, Section 16A.965 and Section 16A.726 make it abundantly clear that the legislature intended to limit the public’s total participation in “stadium costs” to a total of $498,000,000. The City of Minneapolis at the urging of Mayor R.T. Rybak and Council leadership asked the legislature to permit the city to contribute up to $150 million to stadium and related infrastructure construction costs, and base amounts of six million dollars and 1.5 million dollars increasing annually over thirty years for the operation and capital maintenance costs of the stadium. 

This was the deal as presented to the public.  It was a deal that Forbes magazine stated was the third worst deal for the public of any stadium in American history.   Given the extreme generosity of the stadium bill, the public had every right to expect that all public officials would abide by the agreement and support the limits it placed on public subsidies.  Tragically, that was not to be the case.

Consider this:                  

I. Oversight.
 A. To protect the public, the Governor and Legislature agreed to create a 12-member legislative commission on Minnesota Sports Facilities. Each caucus in the House and Senate was to appoint members to this bi-partisan commission. Instead of meeting and performing this vital function of oversight, the commission became dormant. It abrogated its responsibility to determine actual levels of contribution, review costs, and to make certain that spending limits were properly enforced. This commission was to be the public’s watchdog. Instead it slept.

 B. In order to obtain a comprehensive compliance audit and determine spending legitimacy, the directive for the legislative audit must come from the Legislative Audit Commission. Had the commission noted above done its work, they could have triggered a full-blown compliance audit. Instead nothing happened and the financial clouds remain. The Governor and legislative leaders failed to sound the alarm. Indifference was the order of the day.

 C. The compliance audit responsibility for the city’s role in the stadium and the Downtown East Project resides with the State Auditor. We met with Rebecca Otto in the spring of 2015 and she fully agreed to pursue the audit. This audit would have dealt with a variety of the City’s public expenditures on the stadium and related infrastructure, including the issuance of debt that well exceeded the state imposed limit of $150 million. She reneged on her promise and advised us that her office was “too busy” thereby forfeiting her responsibility to taxpayers.

 D.  Finally, despite numerous letters and information provided to the Mayor and Council Members regarding these concerns we have heard nothing from our city leaders on these issues.

Consider this:
 When the City’s chief financial officer finally acknowledged in January 2015 that revenues from the parking ramps to pay off the bonds for the Downtown East project would likely be inadequate by as much as $31 million there was not so much as a Committee report or discussion.  This despite the fact that when the Council approved the project in December 2013 it was told that there was no “subsidy” and that the City’s role was merely to “finance the project.” 

When the City sought to maximize revenues from the air rights over the newly constructed parking ramp the City allowed the MSFA and the Vikings to veto a larger and more lucrative residential development because of the potential of “inconvenience” to premium Vikings ticket holders with free parking in the ramp. 

Just last month the MSFA and the Vikings announced that the Vikings will receive the proceeds from naming rights on the publicly owned parking ramp which is now called “the Mills Fleet Farm Ramp.”  This action was taken without any objection from City leaders even though the City’s property taxpayers are on the hook for anticipated shortfalls from the revenues on that very ramp.

In 2014 the MSFA reached an agreement with a promotional company in which the company will pay an amount of six million dollars per year (increasing annually) for the right to proceeds from non-Viking events at the stadium.  These same revenues for other events were a pivotal argument for the public benefits allegedly provided to the City and the State by the new stadium.  Chair Kelm Helgen on two separate occasions has stated that it is her intent to spend all of these public revenues on even more improvements to the stadium.  Despite the massive City contribution to the stadium no one at City Hall has questioned her authority to do so or made the case that these revenues should be used to offset City and State expenditures for the ongoing maintenance and operation of the stadium.  

Tonight you are considering ongoing operational funding for the Commons.  This is absurd.  It is unlawful, as the Court made clear in 2013.  The City Council has no authority to operate a park.  Beyond that, however, the Council has refused to renegotiate the Use Agreement with the Vikings and the MSFA despite former Mayor Rybak’s call to renegotiate.  A budget direction from 2015 calling for staff to report back on options to re-negotiate the Use Agreement was ignored. 

Finally, the City should assert its rights under the stadium legislation to use its annual six-million-dollar operational subsidy for any of the following: 1) extraordinary costs for the hosting of the Super Bowl; 2) any shortfalls in the parking revenues necessary to satisfy the bond payments; and 3) any operational costs for the Commons.  Rather than take this approach the City seems intent on increasing the public’s exposure for the stadium and stadium related costs at every turn. 
 In essence, the very checks that government put in place to protect the public against excess and illegal spending were abandoned by those same governments. Oversight was a sham and the above-mentioned officials all went along with it.

II. The Downtown East Development Agreement and City Subsidies to Stadium Development
The many questions raised by the Downtown East development project by the signers of this letter have never been addressed:

Now:
1.  The stadium legislation made clear that the cap on the City’s contribution to the stadium and surrounding infrastructure was limited to $150 million.  The City argued in Court in 2013 that the cap was not violated because it was merely financing the deal and further that the development was not to benefit the Vikings but to further redevelopment.  We now know that both statements were untrue.  Why was there never any debate or even legal opinion provided on the legality of the City’s additional subsidies to provide a free parking ramp and free open space to the Vikings?

2.  Why was there no public appraisal of this land to determine value? The portion of the land earmarked for the park was listed by the County as having a valuation of five million dollars. In a convoluted deal, the land was sold to the developer of Downtown East for $13.9 million and then subsequently transferred to the city for the same price.  Why did the public pay such a high price for the land without any public appraisal? 

3.  Why did the city bypass a review board and hearings before the Minneapolis Board of Estimate and Taxation as well as the Committee on Long-Range Improvements (CLIC)? These bodies study and take a long-term perspective thereby protecting the city from an undue debt burden. It should be noted that Moody’s lowered the city’s credit rating due to its debt load. It should also be noted that there was a public protest from the Board of Estimate and Taxation with one member calling the bypass “sleazy”.

4.  The city floated some $65 million in bonds for the purpose of purchasing the park land and funding a parking ramp. The city has represented that this debt will be retired by revenues generated. Toward that end, the bond prospectus lists some 60 scenarios relative to the projects being self-sustaining. If that were the case, then why did the city not use revenue bonds? Interest rates have been very low so why burden the Minneapolis taxpayers with General Obligation bonds which use taxpayer property as the guarantor?  As you know, parking ramps are at best a financial challenge. Further, the city has pledged free days for Viking parking thereby lowering revenue opportunities.

In 2014, Kevin Carpenter, the city’s CFO at the time of issuance, indicated that the city taxpayer could end up being exposed to some thirty-one millions of dollars of property taxes from bond shortfalls in the revenues generated by the parking ramps.  Certainly, Carpenter’s lack of confidence should have served as a red flag to Minneapolis’ leaders. Did you and the City Council review the revenue projections or in any way revisit the decisions that placed the Minneapolis homeowner on the financial hook?

5.  According to the Star Tribune, the Park Board officials expected “the cost of operations and maintenance to approach “$3 million a year.” That would be some $90 million over the life of the lease. Where will that money come from? Further, how does this expenditure not exceed legal limits imposed by state law?

6.  In 2012, the legislature inserted language in a tax bill that amended the city’s charter to remove all restrictions as it pertains to financial limits on funding sports facilities. This is an immensely important change in that it totally removed the $10 million cap imposed by the voters.  Is the City tracking the use of its sales tax revenues for both the Vikings stadium and for Target Center?    Since 2011 legislation now allows the City to use its local sales tax for community development and affordable housing has the Council asked for an accounting of those funds to determine what if any amount of those funds remain available for critical housing and development needs? 

III. Other People’s Money
After leaving office, Mayor Rybak declared he was “shocked” by the terms of the Use Agreement and stated that the terms did not reflect the agreement he reached with the team or the MSFA.  He called for a re-negotiation of its terms – a call that has gone unheeded by the Mayor and City Council. Governor Dayton was “surprised” by the revelation that Vikings owner Zygi Wilf had serious lawsuits pending against him in New Jersey.

A basic rule of any financial vetting process is the requirement to disclose all contingent financial liabilities as well as any pending legal actions. The bottom line is that the person taking out a car loan received more scrutiny than Wilf who sought hundreds of millions from the public.

As mentioned, the original deal called for the state including Minneapolis to be responsible for financing $498 million and no more. Wilf was to be responsible for the balance which was to be an approximate $487 million not including upgrades. Here is an estimate of Mr. Wilf’s “contribution”:

Grant from NFL                                   $50 million
Naming Rights                                     $220 million
Seat licenses                                         $125 million
Commemorative bricks                        $ 32 million
NFL loan                                             $150 million
                                                            $577 million

It is expected that the loan will be paid off as an ongoing expense against Viking revenues which include ticket sales, concession profits, TV revenue, etc.  The other “contributions” by Mr. Wilf are in fact paid for by the public. All of the Vikings “contributions” will be paid for by revenue sources uniquely generated by the stadium.  The public shares in none of the revenues – only the costs. 
In addition, the most conservative evaluation of the worth of the team is $1.15 billion with some estimates exceeding $2 billion. That represents a significant return on a $600 million investment. This is particularly true when much of the value increase is a result of the stadium built entirely by the public.

At the same time, taxpayers will be responsible for some $600 million in order to retire the state bonds and then as noted there will be an additional burden on the Minneapolis taxpayer.
At this point, it should be acknowledged that these figures are estimates. Since there has been so much obfuscation and no comprehensive audit to verify actual costs and contributions of the parties involved, estimates are all that is available.

Nonetheless, a simple fact stands out and that is Mr. Wilf has used other people’s money and not his own. The public paid for both sides of the deal.

And now we are witnessing the continued expenditures by the City of Minneapolis and the Metropolitan Council to fund a variety of amenities including skyways to benefit the Vikings.
Somehow the Metropolitan Council has decided it is not under the state law governing financial limits and, therefore, free to contribute taxpayer money to the Wilfs without any restrictions. This body is appointed by the Governor and accountable to the Governor but apparently free to disregard his promises.

IV. Broken Promises – Ignored Warnings
When Governor Dayton and legislative leaders pledged to Minnesotans that not “a single dollar of general fund tax revenues” would be used for the stadium the public had a right to rely that declaration without hiring lawyers to search for loopholes. The promise went to the issue of trust.
In spite of that promise, Governor Dayton proceeded to sign legislation that committed the spending of up to $20 million a year for 30 years in order to pay off the bonded indebtedness. As if this commitment was not enough, he also signed into law a provision entitled “Backup Revenues; Football Stadium Funding.” This allows his Commissioner of Management and Budget to use other revenues in the event the $20 million annual debt payment is not sufficient. This is all general fund monies.

In late November 2013, one of the authors of this letter, former governor Arne Carlson, wrote a public blog cautioning the Mayor and City Council to go slow noting the complexity of the deal and the fact that the private sector “will always hire the best talent and advance their best deal. They are successful because they know how to make money. This is not the public sector’s strong suit.”
There was also an array of other public warnings issued that should have caused the Governor, Legislature, Mayor and City Council to exhaustively review all aspects of the implementation of the stadium legislation and the Downtown East development:

1. The city’s chief development officials, Jeremy Hanson Willis, publicly declared on November 22, 2013: “It is one of the largest and most complicated development projects that has come before us in many years. There are so many issues still under discussion that need to be resolved.” (Star Tribune).

2. Jon Tevlin, columnist for the Star Tribune, wrote that the legislative closed-door process made the stadium deal as “transparent as the Berlin Wall.”

3. Former Star Tribune columnist, Nick Coleman, observed the Senate-House conference committee and declared, ‘yes we all learned in school, the corrupt days of smoked-filled rooms are gone. But that’s only because smoking is no longer permitted.”

4. Even the Vice-Chair of the Minneapolis Audit Committee expressed alarm: “Unfortunately, the lack of transparency on critical spending decisions over the past several years has only increased “the lack of trust our citizens have in City Hall.”

5. In August 2013, the owner of the Vikings was ordered to pay $84.5 million in damages. Of particular interest is the judge’s observation that “I do not believe I have seen one single financial statement that is true and accurate.” 

Financial details on this complicated package were released on December 5 and 9. Four days later, the Council approved the entire package.

As we stated at the time the City Council ignored many warning signs and there was a total lack of due diligence in the approval of this project. 

V. Minnesota Sports Facility Commission
The Minnesota Sports Facility Authority (MSFA) was presumably established by the state to monitor the Vikings stadium project and manage certain assigned tasks.  As you know, the Authority has become an endless source of negative news stories largely focused on a failure to protect the public purse, a lack of transparency and most recently giving access to MSFA suites without proper oversight as sensational and troubling as the suite issue may be it should not overshadow other concerns that are far more serious and infinitely more expensive to the taxpayer. We would submit the following questions for review and response:

1.  What legal authority does the Minnesota Sports Facility Authority cite relative to its power to grant naming rights of the parking ramps to the Vikings? The city of Minneapolis and its property taxpayers carry the entire debt burden of the ramp and yet the MSFC claims the power to shift revenue that should go to the retirement of debt and instead is given to the Vikings.  The Mayor and Council need to protect their constituents and challenge this arbitrary use of authority to defeat the security interests of the Minneapolis taxpayers. 

2.  What was the purpose of the arrangement that gave MSFA ownership of the parking ramp without any obligation to pay the debt? Who is protecting the city taxpayer from these shortfalls?

3.  As stated earlier under what authority does the MSFA use revenues (six million dollars and increasing annually) from its contract to promote non-Vikings events to spend even more money on the stadium without any notice or consent to city and state taxpayers that are footing the bill?
Frankly, the current scandal involving the Minnesota Sports Facilities Authority is a predictable outcome of a highly political process that was dependent upon mutual backscratching as opposed to a solid business deal handled in full public view with capable professionals representing the taxpayer. The outcome is that MSFA rewards political loyalty instead of competence and diligence on behalf of the taxpayer. 

Summary
Democracies cannot be held together solely by law and the enforcement of law. They require trust to provide the glue that binds people together. When that trust is breached as it was in Vietnam and Watergate there will be political upheaval.   No – this is not about war or presidential scandal.  But nonetheless the repeated failure of institutions to stand up for those they are sworn to serve does great damage to the confidence we have in those who lead our city and state. 

When the Governor made his pledge, the people had a full right to expect that promise to be kept. It was not said in the heat of a campaign nor was it a flip comment at a news conference. Rather it was a serious statement of assurance given by the state’s leader to an apprehensive public. It was an issue of trust.

The rest is history; a history largely kept under wraps because it involved both political parties and various levels of government as well as powerful interest groups. But the bottom line is that millions upon millions of dollars flowed to the stadium from “general fund revenues” in the state budget, the Minneapolis city budget, and the budget of the Metropolitan Council.

The public was not only called upon to fund the stadium but also the infrastructure that surrounded the stadium including park land, parking ramps, and skyways. Yet to be fully tallied are all the costs of maintenance.  With the state, the Metropolitan Council, and the city of Minneapolis ignoring the spending limits imposed by law, there is no end in sight as to how much taxpayer money will be spent.

To date, no major elected official has even called for this bleeding of public funds to cease.

Government is largely about setting priorities. That is what you do tonight as you adopt your budget.  Why is it more important to increase the public subsidies for one very rich individual instead of using those same dollars to providing warm and safe shelters for our thousands of homeless children and veterans? The extra hundreds of millions poured into Wilf could have met so many other vital needs ranging from properly funding our adjunct faculty in higher education to providing vital dollars to advance a broad array of medical research needs at the University of Minnesota.

What is required now prior to the legislative session is a full-blown public review of the entire stadium – Downtown East package.  Members elected to the Council in 2013 did not vote on the stadium and did not vote on the Downtown East project.  It is unclear to us whether any of the new Council Members were fully briefed on the costs of this project and the safeguards to limit the City’s spending on the stadium and the supporting infrastructure.    There are also many new members of the legislature who have not been privy to these issues who deserve a full and public opportunity to express their concerns. 

You have the opportunity tonight to do what is right.  We urge you to do the following:
1)      Pass a staff direction that all costs for the stadium, its operation and management, the surrounding parking ramps and park are fully reported and monitored. 

2)     Direct your finance staff to limit the ongoing city subsidy for operations and capital maintenance to the amounts provided for in statute.

3)      Require that the previous motion for a report back to committee on the re-negotiation of the Use Agreement with the Vikings by requiring the team to pay for the fair market value for the use of the Commons be honored.

4)     Direct staff to meet with Michelle Kelm Helgen to discuss the City’s concerns regarding unilateral actions by the MSFA that have hurt the City’s taxpayers;

5)     Refer to the IGR Committee the issue of City support for legislation creating an enforcement mechanism that will ensure city and state stadium spending caps are honored;

6)     Pass a staff direction tonight calling for a public hearing on these issues. 

It is never too late to do the right thing. 
                                                                                                
Respectfully submitted,


                                                                                                
Arne H. Carlson, former Governor of MN
Grant Park Place
500 East Grant Street
Minneapolis
                                                                                               
Paul T. Ostrow, former President of Mpls. City Council
2239 Arthur Street NE
Minneapolis    



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