After months of haggling, the Vikings and their supporters have a $975 million deal to build a stadium in downtown Minneapolis.
The team would chip in $427 million, the state would cover $398 million with cash raised from electronic pull-tab gambling and the remaining $150 million would come from the City of Minneapolis in the form of preexisting convention center sales and hospitality taxes.
Once the stadium is built, it will cost $20.5 million annually to operate.
At first blush, it appears that Minnesota would get a new stadium for just under $1 billion.
But a closer look shows the cost might be higher than that, and that some of the money stadium supporters are counting on may not materialize.
More on the Vikings stadium deal
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• Mpls. City Council skeptical
• Document: Financial breakdown for stadium deal
• Facebook: Join the discussion
• Big Story Blog: Follow updates as they happen
To pay for the public subsidy, the state plans to issue bonds -- and that means Minnesota would be managing that debt for many years to come.
Metropolitan Sports Facilities Commission chair Ted Mondale says the state would pay $38 million annually for the first decade, $21 million annually for the second decade and between $10 and $11 million annually for the third decade, bringing the total public cost to $700 million -- about $300 million more than the initial state contribution.
To cover those annual payments, the state would rely on new gambling revenue from electronic pull-tabs -- a revamped version of the paper pull-tabs popular among charitable organizations -- and virtual bingo games in bars.
A recent study by the Rockefeller Institute of Government and the Pew Center for the States indicates that gambling revenue is not always a reliable source of cash. The report found that 10 major gambling expansions since 2002 raised less than expected.
Based on numbers from the Minnesota Gambling Control Board, the Minnesota Department of Revenue conservatively estimates that allowing electronic gaming could raise $72 million annually -- more than enough to cover the cost of the annual payments.
But the estimate leaves out an important variable: tax relief sought by the organizations that use gambling to raise money for charities. Those groups want to trim a tax that's been in place for decades, which would mean less money for the state.
Without tax relief, King Wilson, executive director of Allied Charities of Minnesota, argues that the state will collect much less than expected because taxes on electronic pull-tabs will be so high his members won't use them.
"We've been trying to tell people that without tax relief and reform, it's just not economically viable, and it won't work," Wilson said.
Without a tax cut, Wilson expects charitable groups to either stick with paper pull-tabs or adopt electronic bingo, which would reduce the amount of money the state is counting on from gambling.
CONSTRUCTION AND OPERATION OVERAGES
The plan calls for creation of a stadium authority, a state entity that would have money coming from the team, city and state. That stadium authority would be on the hook for any additional costs associated with the construction and operation of the stadium.
Mondale, of the Sports Facilities Commission, said there is a plan in place to cover unexpected costs. He said money made in profitable years will be put in reserve accounts for bad years.
"If you get three U2-sized concerts, you're going to have a really good year, because that's extra money to the authority," Mondale explained. "But there's going to be some years, if inflation goes way up and our costs are in trouble, then we've got issues we need to deal with. But we feel that we're protected on the up side and the down side."
There's no way to predict how much those overage costs could be, but Target Field provides a recent comparison. The Twins initially contributed $130 million for construction and unforeseen costs. On top of that, the team has chipped in an additional $65 million for infrastructure and other enhancements.
APPROPRIATION BONDS A RISKY OPTION
To cover up-front costs, the Vikings stadium plan calls for state-issued appropriations bonds. These bonds are unique in that they require lawmakers to periodically approve payments from the state general fund to cover the debt service on the bonds.
But they are also more expensive than traditional bonds, said Hubert H. Humphrey School Senior Fellow Jay Kiedrowski, who served as Minnesota's finance commissioner in the 1980s.
"Appropriation bonds are more costly in the marketplace, because bond holders are less interested in having bonds that depend on the appropriation each year by the state for that purpose," Kiedrowski said.
Unlike safer bonds that require the state to pledge all its resources to repay the bond, the appropriations bonds "don't have that full faith and credit pledge against them. They only have that expectation that each Legislature will pass the appropriation for those bonds," he said.
If gambling or convention center tax revenue comes in lower than expected, the state will still have to dip into other pots of cash to cover the bond payments, Kiedrowski explained. Heated debates over whether to appropriate the bond payments could do harm to the state's credit rating and future borrowing, he added.