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
