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First Reading: A mega opportunity at what cost?

Published (4/25/2008)
By Courtney Blanchard
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During the April 22 House Taxes Committee meeting, Rep. Mike Nelson, second from right, House sponsor of a proposal to finance a Mall of America expansion, listens to, from left, Kyle Makarios, political director for the North Central States Regional Council of Carpenters, David Ybarra, business manager for the Minneapolis Building & Construction Trades Council, and Rhys Ledger, strategic campaigns director at Teamsters Local 120. There were more than five hours of testimony about the proposal. (Photo by Tom Olmscheid)

How could 8,000 parking spaces at the Mall of America keep $1,333 away from East Grand Forks? Even though it is a five-hour drive from Bloomington, a funding proposal to expand the mall could divert local government aid from the northwest Minnesota city and other cities across the state.

The proposal, HF2237, sponsored by Rep. Mike Nelson (DFL-Brooklyn Park), went before the House Taxes Committee on April 22.

The bill provides a funding mechanism for the MOA to start construction on Phase II.

Phase II has been in the works since the original plans for the mall came about 20 years ago. More than 5 million square feet would be planted to the north of the existing mall. The $2 billion project would house four levels of shops, spas, hotels, theaters and a water park.

“The ability to draw tourists during tough economic times is even more important,” said MOA Vice President Maureen Bausch. “The Mall of America has to stay fresh. It’s what we do best. And to do that, we have to grow.”

Supporters of the project say growth for the mall means the state gets more jobs and tourism. Others argue that the project could lead to property taxpayers chipping in for the mall because, if it’s funded through the fiscal disparities pool and a tax increment finance district land swap, communities would miss out on increased LGA or tax base.

Lawmakers are under pressure to decide if it’s worth it.



Bill rundown

The bill proposes for the project to be funded, in part, by:

• using what would have gone into the fiscal disparities pool to fund a parking ramp, which would be owned by the City of Bloomington;

• transferring some land from a tax increment financing district that expires in 2015 to one that expires in 2018; and

• authorizing the City of Bloomington to impose a local sales tax on lodging, admissions and recreation, food and beverages and a general sales tax on the mall.

The bill has restrictions on how the public money could be used. Those include:

• that all tax increments go toward public infrastructure costs;

• using as much American-made steel as possible;

• paying full-time employees wages above the federal poverty level for a family of four (excludes part-time and seasonal employees and businesses with fewer than 50 employees);

• keeping attractions affordable; and

• remaining neutral on labor negotiations with hotel workers.

After five hours of testimony, the bill was laid over for possible inclusion in the committee’s omnibus tax bill.

In the Senate, sponsored by Sen. Tom Bakk (DFL-Cook), the language was incorporated April 3 into SF2869, the omnibus tax bill. Even if the House doesn’t include the proposal in its upcoming omnibus bill, the issue will show up at the tax bill conference committee.



Funding questions

Some lawmakers question how the project would help their districts. Rep. Sandy Wollschlager (DFL-Cannon Falls) said she walks down the street in her hometown and sees empty storefronts.

“The people are telling me that it doesn’t benefit our district very much to help a big shopping mall that’s already very successful and already getting dollars from me,” she said.

Some critics assume that Phase II will be built with or without the state’s help. If that were true, the bill would actually take money away from the general funds of cities across the state.

The bill would exempt the mall from paying property taxes into the fiscal disparities pool.

All businesses located in the seven-county Twin Cities metropolitan area pay into the pool, and the funds are redistributed to business property-poor cities. The mall’s exempted share would pay for a parking ramp, but it would cause the metro cities to lose a chunk of property tax base.

The bill also contains a partial land swap between the TIF districts around the mall. A TIF district allows a community to pay debt on a development project with a future tax base.

Both provisions would shift the LGA formula because some of the metro cities would appear “poorer” due to lost tax base, according to the nonpartisan House Research Department. The formula shift would funnel money from Greater Minnesota cities like East Grand Forks to metro cities.

Most outstate cities would lose under $1,000. Metro cities would gain some LGA, but take a bigger hit by losing property tax base. Altogether, metro cities would share a budget loss of $1.2 million, according to estimates by House Research.

“Every little lever that you pull in the property tax system affects and bulges out somewhere else,” said Rep. Paul Marquart (DFL-Dilworth).

The proposal to use the fiscal disparities pool also has critics among metro area businesses. Sam Grabarski, president of the Minneapolis Downtown Council, said mall competitors would be funding the parking ramp with their property tax dollars, allowing the mall to grow more successful and become a bigger competitor.

“That sort of imbalance is anathema to the retail industry,” he said.



Job potential

Mall representatives insist that without the state’s help, the project isn’t feasible. In that case, the state would miss out on one of the project’s upsides — job creation.

About 7,000 contractors, electricians, plumbers, dry wall installers, concrete pourers and painters would be put to work.

For Carl Madsen of Minneapolis, that means he’d come out of a period of unemployment that could last 18 months. He’s one of hundreds of union electricians waiting to get a job.

“I’m proud to be an electrician, but it’s tough when you’re sitting at home staring at the wall, and you’re not working,” he said.

If the proposal goes forward, workers from Delano, Virginia and Brainerd could be called to work on the project. For some lawmakers, the job potential seals the deal.

“I’ve witnessed, firsthand, what the downturn in the economy has done to my family,” said Rep. Debra Hilstrom (DFL-Brooklyn Center). Her husband is a carpenter who was recently called back to work after a long period of unemployment.

“I think we have the ability to show the leadership and bring in these Minnesota jobs that this industry so desperately needs,” she said.

It wouldn’t be the first time a state subsidy has gone toward a large building project. This year, the Legislature passed two laws that will create construction jobs. The transportation finance law cleared the way for road projects, and the bonding law funds projects around the state, from a convention center in Duluth to improvements to state parks.

However, the MOA proposal is different from the transportation and bonding laws, Committee Chairwoman Rep. Ann Lenczewski (DFL-Bloomington) said.

“The bonding bill and the transportation bill are public money for public core government services. This proposal is public money for a private company,” Lenczewski said.

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