Mayo Clinic's 'destination medical center' needs taxpayer help

Mayo Clinic expansion
In this undated photo, The Mayo Clinic, Minnesota's largest private employer, pressed state lawmakers Wednesday, Jan. 30, 2013 to commit more than $500 million toward an ambitious development project tied to the renowned medical center in Rochester, Minn.
AP Photo/Rochester Post-Bulletin, Elizabeth Nida Obert

The Mayo Clinic and the city of Rochester are in the midst of a construction boom, with cranes marking the downtown skyline and three multi-million dollar expansions under way on the Rochester campus.

Now, Mayo proposes to invest billions over two decades to make Rochester and surrounding communities a "destination medical center."

The plan unveiled Wednesday in St. Paul would keep Mayo's headquarters in the state and add tens of thousands of jobs over the next two decades. The proposal calls for Mayo to spend $3.5 billion in capital investments at its Rochester campus over the next 20 years. Mayo estimates that the expansion could attract at least $2.1 billion in additional private investment.

In order for the plan to work, Mayo needs help from taxpayers, said the company's president and CEO Dr. John Noseworthy.

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"We have to decide where we're going to put this $3 billion, where we're going to invest, and we're looking for a partner to help us do that."

"In order for us to make that investment, we need to know that there will be public infrastructure, roads, bridges, sewers, parking and an opportunity for the hospitality industry, retail, medical research, business growth and so on, to land here and to develop here," Noseworthy said.

He said the state should provide more than $500 million in bonds to pay for Mayo's future infrastructure needs.

Mayo's proposed public financing plan claims future sales, corporate and individual income taxes that are generated from the expansion. It also would rely on tax revenue collected by the city of Rochester. The public funds are key to Mayo growing in Rochester, Noseworthy said.

"Mayo Clinic needs to decide where it's going to make its investment. Other states would like us to make them in those other states," Noseworthy said. "We have to decide where we're going to put this $3 billion, where we're going to invest, and we're looking for a partner to help us do that."

Mayo's last major development project was about a decade ago, with the expansion of the 20-story Gonda building. The clinic's footprint in Rochester represents about 14.6 million square-feet, up from 13.1 million in 2001.

Mayo employs roughly 32,000 people in Minnesota, which makes it the state's largest private employer. About a third of Rochester's residents work at the clinic.

Rochester Mayor Ardell Brede supports Mayo's plan, and says as the city grows he expects it will be in a position to finance more than the proposed $20 million share of the project.

Mayo Clinic
A coalition of business and labor leaders, along with city, county and local officials joined Mayo Clinic President and CEO Dr. John Noseworthy, at podium, and Gov. Mark Dayton at the Capitol in St. Paul, Minn. on Wednesday, Jan. 30, 2013 to announce the Destination Medical Center initiative. Under the plan, Mayo Clinic is pledging to spend $3.5 billion expanding its Rochester campus and is looking for $585 million in public financing to fund public infrastructure upgrades.
AP Photo/Rochester Post-Bulletin, Jerry Olson

"As the city grows and the tax base grows because there's more people working here, more people spending money here and taxes coming from business ... that will help pay the infrastructure certainly that's needed," Brede said.

DFL Senate Majority Leader Tom Bakk agrees the city's infrastructure should keep up with Mayo's expansion. He is inclined to support the proposal but said Rochester and Olmsted County need to pitch in a greater share.

"If the city or the county are going to be our local partner, what kind of capacity do they have to partner with the state and with the significant private investment that the Mayo is proposing to put in?" Bakk said. "Much like Hennepin County partnered with the Twins stadium, much like the city of Minneapolis partnered with the Vikings stadium."

Clinic officials say the latest initiative is geared toward ensuring Mayo is able to compete with other medical facilities, like Johns Hopkins, Cleveland Clinic and Massachusetts General.

Economist Martin Gaynor at Carnegie Mellon University in Pittsburgh has written extensively about hospital spending. Gaynor cautions that enhanced competition in health care markets does not always result in the best use of money.

"If they all do the same thing at the same time, what can also happen is actually they just end up dividing the market the same way they did before with no increase in service to consumers and that case, it doesn't actually work out all that well, either for the firms themselves or for consumers," Gaynor said. "A lot of that additional money, in essence, has gone to waste. Whether that will happen here or not, of course, we don't know."

Mayo officials want lawmakers to consider the plan during this Legislative session. Republican state Sen. Dave Senjem of Rochester, a long-time Mayo employee, said he will carry the legislation.