February 17, 2019; Minneapolis Star Tribune
“Catching rays beneath palm trees…looking out on an expansive wading pool, a lazy river, a waterfall [and] an array of looping, multicolored waterslides.”
Sounds lovely. But perhaps not top of mind when you think about the suburban community of Bloomington, Minnesota. You see, Bloomington, located near the Minneapolis airport, has an economic development idea. The city is home to the Mall of America. Founded in 1992, the mall already has an aquarium, “the nation’s largest indoor theme park,” a flight simulator, and an 18-hole miniature golf course featuring an “original, whimsical design with an old-time north woods feel—complete with life size moose, horses, and more!” But, sadly, no palm trees, no river, no waterfall, and no waterslides. What to do?
Writing in the Star Tribune, Eric Roper explains that a plan to fill this gap is here. As Roper details, “The Mall of America’s owners have long wanted a supersized waterpark to complement their shopping behemoth in Bloomington. But customers paying to sunbathe and cascade down giant slides wouldn’t generate enough cash for the mall to privately finance the $250 million facility.”
Fortunately, the city has a solution: use municipal bonding authority to lower borrowing costs. Roper explains, “The city will also spend public money as part of the waterpark deal, most notably $50 million to construct a parking ramp and skyway.” The city would also spend $5 million to $8 million from lodging and liquor taxes to prepare the waterpark site. This subsidy is on top of past city subsidies for the mall—namely, $34 million the city used “to build parking for the first phase of the mall’s expansion, featuring a JW Marriot hotel and new office building.”
And a nonprofit will assume day-to-day management. As Roper explains, “Instead of financing and owning [the waterpark] directly, the city will have a nonprofit organization borrow the money from another issuer of tax-exempt debt…and then own the waterpark. The mall’s owner, Triple Five Group, will retain ownership of the land, and a mall-affiliated entity will also operate the waterpark.”
Roper acknowledges that, “Several authorities on municipal finance said the deal stretches the intended purpose of tax-exempt borrowing.” But there is precedent. Mall of America’s owner, the Triple Five Group, notes Roper, is “also relying on tax-exempt bonds to build a massive new mall in New Jersey called American Dream—which includes a comparable waterpark.”
Attorney Kim Lowe, a nonprofit specialist, tells Roper that “typically a nonprofit is involved because it wants the project for its specific mission, like developing senior housing…The red flag gets raised when the mall’s involved. It’s not like there’s the church of Lutherans thinking, ‘Hey, it would be really good if we built this thing.’”
According to the city, the charitable purpose here involves “lessening the burdens of government.” Two names floated as possible nonprofit partners are Baton Rouge-based Provident Resource Group and Minnesota-based Community Facility Partners (CFP). CFP’s website explains that as “a tax-exempt 501c3 nonprofit, we can combine low-cost bond financing with efficient, ready-to-deploy private development that can save you time and money. Unlike funding processes using general obligation bonds, we don’t get bogged down with public procurement procedures, countless public hearings and referendums.”
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Last fall, Miguel Otárola of the Star Tribune outlined how this would work:
The waterpark would be built on the parking lot directly north of the Mall of America and east of the Ikea store.
A new parking structure next to the waterpark would replace the lost surface lot.
The land, which is owned by Triple Five, would be leased by the city and subleased to the nonprofit.
The nonprofit would take on tax-exempt debt, at lower interest rates than what’s available to a for-profit company, and contract with an operator for the waterpark for 30 years.
The city would own the waterpark once the debt is paid off after those three decades and could hire a new management company.
Ticket sales would pay for the operation costs and the project’s debt.
“The financing plan,” Roper notes, does hinge “on the option of hiking sales taxes on Mall of America customers if revenue at the waterpark falls short…. The city estimates they could generate more than $13 million a year.” Naturally, the city says there’s little risk. But if the waterpark of dreams falters, bondholders will get repaid, while the mall itself is shielded from loss.—Steve Dubb