MN governor to United: Here’s some tax breaks, if you want more later, just ask

Turns out there indeed wasn’t much suspense around the Minnesota legislature’s vote on a full property tax exemption for Minnesota United‘s new stadium in St. Paul: The tax break was rolled into the annual tax bill and easily passed on Sunday. At least the exemption only applies to the stadium itself, not any surrounding development, but even then a Minnesota Public Radio investigation came up with numbers that imply that United’s owners will save $54 million worth of future tax payments via this stroke of the legislative pen.

The new MLS club also got a liquor license approved on the last day of the legislative session, but, interestingly, did not get an exemption from construction sales tax, a common subsidy for many development projects, sports-related and otherwise. (The MPR report gave an estimated value for this of around $3 million.) Gov. Mark Dayton, however, said that just because United isn’t getting the sales tax break now doesn’t mean that it can’t get it later:

As Dayton considers a possible special session, he said in a Monday afternoon news conference that he hoped United officials could see they received most of what they wanted at the Capitol…

While the tax break on construction materials was unapproved, Dayton said United can apply for a sales tax refund under existing state law, an avenue used to build the Saints’ year-old stadium in Lowertown. The law, shared by Coleman’s office Monday, relates to building materials for capital projects of regional significance.

“While the city sought an up-front exemption at the Legislature this session, which is easier from an administrative perspective, the lack of action simply means that contractors can move forward and a refund will be granted on the back end,” Coleman said in a statement.

Okay, sure, the state can just cut United a $3 million check after the stadium is built. But — and I can’t stress this enough — why on earth would it want to? The whole reason for considering the tax breaks in the first place was that United principal owner Bill McGuire claimed that he wouldn’t move ahead with building the stadium without them. (Whether that was true or gamesmanship, we’ll never know at this point, but let’s leave that aside for the moment.) If United starts construction now, it’s not like they can give up halfway if they don’t get their retroactive construction sales tax rebate check — they need to decide if they’re going to move forward under the current law, and if they do, giving them an extra $3 million is just a gift, not a negotiated agreement in order to get a soccer team.

Taken along with Florida’s crazy new stadium-subsidy system, this is an extremely worrisome trend: Suddenly, not only are sports team owners getting public cash because they’re driving a hard bargain, but just because, you know, they asked, and they’re nice guys who built something, so don’t they deserve not to pay taxes on it like normal people? Taken to its logical extreme, it’s probably only a matter of time before Tom Ricketts demands retroactive tax rebates on all the economic activity that Wrigley Field has brought to Chicago over the last century — oh crap, I just gave him an idea, didn’t I? Quick, somebody go distract him with pictures of baby pandas or something until this post has expired from his Twitter feed.

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24 comments on “MN governor to United: Here’s some tax breaks, if you want more later, just ask

    1. I must start by admitting that this is a bit of a side discussion to the main thrust to the article. But I have a problem with the concept of “The Sports Dollar” as it is being used here.

      It is my experience and observation that sports fandom is not very fungible. It is improbable that the 7400 plus per match increase in Minnesota United’s attendance over the past 5 and a half seasons is due to those thousands giving up their Vikings or Twins or Gophers season tickets to start following the equivalent of AAA Soccer, so to speak.

      If the MInnesota Vikings had skipped town, does anybody really believe that the Lynx, Timberwolves or United attendance figures would have almost instantly increased with multiple thousands of former pro football fans?

      If there is ANY indicator that attendance for the other sports teams in the state has dropped because of United’s increased attendance, I would be fascinated to see it.

      The FAR more likely scenario is that Dr. McGuire, after going to a then Minnesota Stars match, saw the potential to tap a specific market that had not been tapped, the “Soccer Fan” market. Classic capitalism in action.

      By any market indicator from around the country, professional soccer is increasing in popularity. However, there does not seem to be an accompanying drop in attendance in other major sports. MLB, NBA, NFL and NHL attendances are at record or near record levels.

      This indicates to me that there are plenty of “Sports Dollars” available for any sport that grips the public’s attention.

      1. “…there are plenty of “Sports Dollars” available for any sport that grips the public’s attention.”

        There may be a willingness to redirect expenditures to “sports dollars” but it ain’t a magic fountain of currency. Sports, other forms of entertainment, a nicer car, a fancier suit, trendier shoes – they all come out of discretionary spending. And everybody has a discretionary spending limit.

        1. Of course there is a limit to “Discretionary Dollars”. But due to the current relevantly robust, if imperfectly distributed, economy and simple demographics (the population of the country continues to increase), at this time, the amount of “Discretionary Dollars” continues to grow. And nobody here has established that the Twin Cities is particularly stretched in that department.

          1. Irrelevant to the point I was making, which was that there was plenty of “Sports Dollars” out there to be spent on soccer and that the Minnesota “Sports Dollar” is not stretched.

          2. No, you said “discretionary dollars.” The amount of discretionary spending in the Twin Cities is independent of how many sports teams it has. The share that goes to sports can and will change, though.

          3. I agree with you, though, that I wouldn’t be losing sleep over ticket sales if I were, say, the Timberwolves.

    2. Fan spending is somewhat expandable, yes. When people talk about a sports market being tapped out, it’s usually in terms of corporate ad spending and season ticket buys — *those* dollars do tend to be substituted rather quickly, as a business that needs somewhere to entertain clients only needs one sport to do it at at a time.

      (Also, should make clear that even if “sports dollars” expand, “entertainment dollars” almost never do to the same extent, since more sports spending means less spending on movies, dinners out, etc.)

      1. And to relate that to this particular case, Minnesota has 19 Fortune 500 Companies, ranking them as 9th in the nation in that department, while ranking 21st in population. It has an unemployment rate of 3.8% , which is under the national average of 5%. And it has just recorded its second highest monthly job growth numbers since 1990 just last month. Median income in Minnesota for a household is, according to the latest stats, $61,481. This is almost $8000 greater than the national median. and has increased by 2.55% over the past three years. I still maintain that, in general, the Minnesota “Sports Dollar” or “Discretionary Dolllar” is not particularly stretched and, indeed, is expanding.

        1. Which is the crying shame of Minnesota’s public spending on stadiums.

          As an area that is thriving, the sports teams need the Twin Cities more than the Twin Cities need sports teams. Yet, somehow the sports teams have extracted a mind-boggling amount of cash from Minnesota anyways.

          1. First, the city is spending NOTHING on the stadium. It is spending money to clean up the pollution that they are in part responsible for, having used the property as a “bus barn”.
            They are spending money on infrastructure, which the public will use whether they use the stadium itself or not and would be necessary for any large scale development there.
            What they are doing is declining to collect certain revenues that they could theoretically collect in other circumstances. That is where the debate lies.
            The ” sports teams need the Twin Cities more than the Twin Cities need sports teams” is an empty statement. ANY entertainment or hospitality business “needs” the public more than the public “needs” the business. The Guthrie Theater needs the public more than the public needs the Guthrie. Where the debate lies here is the question of if there is sufficient public demand for the business in question.
            And while the government has negotiated some bad stadium deals here (the Metrodome being one of them), I believe that on the whole, this is a good stadium deal.

          2. I will agree this is less egregious than the Vikings stadium, the Twins stadium, etc. etc. but that’s really grading on a curve.

            Exempting a development, any development, from property tax is quite a generous handout. However, it is small compared to what the Twin Cities have given other stadiums in recent years. Which begs the question: Why?

            “Sports teams need the Twin Cities more than the Twin Cities need sports teams” is not an empty statement. There is simply no more populous, prosperous or corporate-HQ-filled metro area without a team in any of these sports. Going to the next best alternative would be a major step down. In contrast, Minnesotans can just go to (for example) the Guthrie instead.

  1. Mark,

    It is the one issue the unions and the suburbanites agree on. That is the crux of the issue.

    The Republicans like subsidizing rich people, and the Democrats like subsidizing unions. Neither party gives two shits about the average voter, in large part because the average voter is a moron who knows almost nothing about what is going on with the legislature other than “they are all crooks” but his/her “guy/girl is doing great”.

  2. Confusion about how this ends up being a major benefit to the team owners given premises 1 and 2 below.

    1. The land is publicly owned by the Met Council and hasn’t paid property taxes in 50 years or so, and the land isn’t being sold, i.e., it will still be publicly-owned, according to the news I;ve read about it. Met Council will remain as the land owner.
    2. The team owners are going to pay for building the stadium, and then give it to St. Paul for free.
    3. The team will pay rent to use that publicly-owned stadium located on publicly-owned land, and St. Paul in turn will pay the same amount of money to the Met Council.

    A. Given premises 1 and 2, I don’t see why a property tax exemption is needed for a publicly-owned stadium located on publicly-owned land. Can someone explain this? It seems it would be property tax exempt given the public ownership of land and public ownership of the stadium itself without this legislation. Is the legislation needed to maintain that property tax exempt status simply a technical matter as the use of the land is going to change even tough remaining publicly-owned with a publicly-owned structure on it?

    B. How do the team owners (McGuire, et al.) benefit from a property tax exemption for land they won’t own and a stadium on that land that they won’t own, at least not after they give it to St. Paul as current plan stands? (See C below for an exception to this)

    C. It seems the rent paid to use the stadium–rent that will also be paid by all private users of the stadium–by the MLS team would be higher if that rent included covering some of the expense of a propriety tax assessment paid by the land and stadium owners. But that wouldn’t be an entire year’s worth of property taxes figured into the rent payment if the rent literally only applied to the time the team uses the stadium for games, practices, other events.

    This property tax exemption was sought by the team owners, but I don’t see where it will affect them other than for a brief period of time when they own the stadium (before they give it to St. Paul) or from part C above that it can lower their rent payment for using the stadium.

    I haven’t read any in-depth explanation about these issues anywhere–in the MSP media or here.

    1. You seem to think that public ownership of land and a stadium is a public good. That’s a common misconception, but a misconception it is: The last thing any private team owner wants is to own a sports stadium, since then 1) you’re responsible for property taxes on it and 2) down the road, it’s harder to pick up and move because you’re stuck with the venue. What you want is to control all revenues from a stadium, but stick the public with the deed, which is exactly what McGuire is doing here.

      Think of it this way: You’re about to buy land to build a house, which comes with both maintenance costs and property tax obligations. Then the city government says to you, “Hey, how about instead we buy the land and lease it to you for the same price you would have paid, and you can still build your house on it and use it for whatever you like, only now you don’t have to pay $2.4 million a year in property taxes?” I would hope you can see why that’s a benefit; if not, I have a bridge to lease from you.

  3. As far as stadium deals go, they don’t come much nicer or cleaner than this one. The site has been an economic black hole and a blight on the landscape for decades. St. Paul won’t spend a dime on anything they wouldn’t have with any other kind of development on that site. It hasn’t generated a dime of tax revenue for 50 years and while the stadium itself will stay off tax rolls, the surrounding development won’t. This is a pretty sweet deal for St. Paul.

    I admit, I follow the soccer threads because I’m a soccer fan, but even if you aren’t, it’s hard not to admire all these MLS deals coming through. San Jose, Orlando, LA, Minnesota, Miami (eventually), and (likely) Sacramento…all 100% privately funded. That’s not counting DC, which will be mostly privately funded. Sports infrastructure as it should be done.

  4. Neil,

    I’m going to ignore what you wrote about “public good’ as irrelevant because it doesn’t address what I wrote about. You response is in fact “non-responsive” to my post because you didn’t answer my questions nor address the particular issues I noted and commented on.

    If you are truly interested in exchange of information and ideas about this general topic that you devote so much time to, I suggest you re-read what I wrote and asked and really think about it before writing another response.

    As far as the benefit to McGuire, the question isn’t whether and how he benefits from having the land and stadium publicly-owned rather than owning it himself. The questions are that given that he will own neither the land nor the stadium, 1. why is the property tax exemption legislation needed in the first place and 2. how does he benefit from a property tax exemption that wouldn’t affect him anyway because he will own neither the stadium nor the land it’s built on?

    That’s the big mystery. People like you are writing about what a benefit to McGuire this exemption is, while based on my two non-refuted premises he doesn’t benefit from it (other than as I point out perhaps his rent payment being affected).

    You offer no explanation about that, yet you’ve written multiple pieces critical of the deal and this exemption because it’s the public giving a tax break to/supporting a private team owner.

    You’ve sold the property exemption as a benefit to McGuire when you haven’t explained or shown how it is a benefit to him. No one has, that I’ve read, hence why I asked what I asked and asked here hoping to get a well-informed explanation.

    What I’ve seen you do about this specific situation over the month is trot out your typical arguments and sometimes rants about public money supporting sports facilities when not all of them apply to this particular situation. I presented you the opportunity address the particulars of this stadium and team and deal, and you didn’t.

    That’s all.

    1. Here you go:

      “Ownership, use, and necessity of ownership are the three key elements in determining exemption. Absence of any of the three elements would likely disqualify a property from exemption unless specifically allowed by law.”

      In other words, a stadium being used for a private purpose would still normally be taxable. So that’s why McGuire asked for a special exemption.

      In any case, though, if the question is how being exempted from property taxes benefits McGuire, it doesn’t matter much whether this happens via public ownership of the land or via the legislative tax break vote, or the combination of the two. The point is, if he had had to go through the normal process of buying land and building a stadium himself, he’d be on the hook for property taxes; instead, the city and state structured the deal so that he wouldn’t have to pay any. That’s a benefit of about $54 million, and no different in fiscal terms than if McGuire owned the land and the stadium and the city sent him a $54 million check.

      1. No, it is not the same as sending him a check.

        That would be the city taking money that they already have and giving it to him (and the rest of the ownership group). This is declining to take $54 million from them for a piece of land that the city has not gotten any tax money from in over 50 years.

        The reason that they are doing this, in the main, is their belief that the owner of the surrounding land will greatly increase the value of his land through new development, which will not get any property tax break.

        And the reason that the city they believe this, is that the owner of the surrounding land, RK Midway, has told them that that is what they are going to do, but only if the stadium gets built, because RK Midway believes that the stadium will attract more of the public and more businesses to it’s property.

        While I believe that RK Midway is correct in their assumption, it is certainly a debatable point. But this is a deal where all sides are making concessions and commitments to each other for what they perceive as a good deal for almost all involved. [Poster’s Note: The reason I say “almost” is that I suspect that some of the businesses currently there may have to relocate due to a likely rise in their rent. This is contingent on whether they get enough of an increase in business from being in new, more attractive spaces and other business factors, to cover that increase.]

        Declining to take someone’s money is not the same as giving them yours.

        1. Giving someone a special tax break is exactly the same, functionally, as charging them the normal tax rate and then cutting them a check for the same amount. That’s why there’s a budget term for it — “tax expenditures” — that makes clear that exempting someone from taxes is a government expense.

          I know that “declining to take someone’s money is not the same as giving them yours” is a somewhat commonly held belief, but it’s simply not true. Money is money wherever it started, which is why sports team owners are perfectly happy to substitute tax breaks for cash subsidies, since they know it will come out the same on their balance sheets.

      2. Thank you for doing what no Minnesota reporter did–explain exactly what’s going on. Nor did any supporter or opponent of the stadium deal explain what was really going on with the property tax exemption. I never saw anyone ask the question I asked in a public forum. My question stumped everyone I asked. All the talk was about how this would benefit McGuire, but no one got to the heart of the matter with all the talk about ownership of land and stadium. The “use” part of the clause was ignored.

        It makes me wonder if there’s a use threshold–percentage of revenue, receipts, or attendees, etc.–that makes a facility trigger the “use” clause given that it won’t be used solely by one tenant. I imagine some team owners of publicly-owned facilities try to get around triggering that kind of clause by allowing many other uses of a facility.

        1. The tax laws on property tax and usage vary state to state. That would be an excellent question to direct to the Minnesota state tax office.

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