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Five things they’re not telling you about the Vikings stadium

Government leaders are refraining from emphasizing certain points in an effort to get the darned thing built.

The stadium will cost a whole lot more than $975 million.

The less said, the better. That’s a mantra that smart politicians live by. In every controversial proposal and program, after all, one or another of the gory details is bound to offend a fairly broad swath of constituents.

So it goes with the Vikings stadium.

While our leaders are not explicitly lying, they are — well — refraining from emphasizing certain points in the current plan in an effort to get the darned thing built. Among them:

1. Money would be coming from the state’s General Fund. In his press conference announcing the deal, Gov. Mark Dayton proudly declared that money for highway maintenance, schools, nursing homes and other state functions will not be touched; all funds to pay for the stadium are supposed to flow from taxes on charitable gambling, in particular electronic pull-tabs and bingo  — though I could not find any specific provision for this in the proposed legislation. (Seventy pages of legalese is a lot to read; so maybe it’s in there somewhere.)

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 This notion, in any case, is sleight of hand, or rather, sleight of mouth, because charitable gambling revenues normally go directly into the state’s General Fund. Yes, charitable electronic gaming is new, so the revenues would be new, but if the stadium deal were not on the table, that dough would wind up you-know-where.

When Senate Majority Leader David Senjem, R-Rochester, one of the bill’s co-sponsors, was asked about the semantics, he suggested that maybe the money would be placed in a special account. Maybe, but the bill, as currently written, clearly states that payments for bonds floated to build the stadium will come from “money appropriated by law from the general fund.” I rest my case.

 2. The stadium would cost a whole lot more than $975 million. OK, that’s the amount needed to build the thing, assuming no cost overruns. That total, however, does not include financing costs. If you’ve ever looked at what you will have paid for your house if you stay in it for 30 years, you know that interest alone could have bought you another, probably more expensive dwelling.

 “Stating just the principal amount is a common and misleading device used to promote a project,” says Wilson White, a New York municipal bond expert. Generally, he adds, repayment plus interest for long-term bonds comes to about 10 percent of the “issue amount” — or face value. Ergo, annual debt service on just the state’s $398 million portion will equal about $39 million. Multiply that by 30 years, and the total cost jumps to $1.17 billion.

Minneapolis Mayor R.T. Rybak has pledged, pending City Council approval, another $150 million contribution, for which state bonds also have to be floated. That adds $450 million to the tab. Of course, the Vikings will also be borrowing and paying interest, no doubt at a higher rate than the state, but the total for the public share of the project comes to $1.62 billion.

That’s not accounting for operating expenses; the proposed legislation contemplates allocating $7.5 million a year for them. I would add it all up, but my calculator just broke. As they say: “Uff da.”

3. Appropriation bonds, which would be used to finance the stadium, carry a higher rate of interest. Ordinary general obligation bonds—those backed by the full faith and credit of the state, carry an unconditional guarantee that it will repay, come hell or high water. For that reason, they are much less risky than, say, corporate bonds and come with below-market interest rates.

Appropriation bonds are different: The Legislature must specifically allocate money each year to repay them. If revenues from those electronic gaming gizmos do not yield enough to foot the bill (or even if they do), Minnesota could conceiveably decide to stiff the bondholders. A default is unlikely because it could send the state’s credit rating right into a dumpster, and legislators would no doubt do whatever it took to stand by the state’s obligations.

For that extra danger, however, the state will have to pay a risk premium to investors, that is, a little more vigorish. Instead of 3.6 percent a year, what the state’s current credit rating merits, according to Wilson, it would probably have to pay 3.75 percent. (Add another $25 million or so.)

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Wilson, however, is not even sure that investors these days would want to purchase appropriation bonds whose income comes only from charitable gambling. They prefer bonds that have the full backing of the state, he says. 

4. It’s not really the People’s Stadium. Just because you say it is doesn’t make it so.

True, any taxpayer will be able to walk or drive by and enjoy a quickened heartbeat upon viewing the grand public work once construction is complete. Attending a Vikings game, however, still will require discretionary income. The average ticket, according to SeatGeek.com, runs about $57, and a fancy new stadium could further boost the price. All money from football ticket sales will go into the Vikings’ coffers, presumably to repay their loans and defray other expenses.

Taxes from charitable gambling that will pay the freight for the state’s share are among the most regressive, according to John Spry, associate professor of business at St. Thomas University. A regressive tax is one in which the effective tax rate (the tax as a percentage of income) falls as income rises.In other words, the rich pay less, and the poor more. A 2011 study of household tax burdens (PDF) by the Tax Research Division of the Minnesota Department of Revenue found that all state taxes had a “Suits Index” or burden measurement of -0.054, which means that they are mildly regressive. (A measure of zero means that they are perfectly proportional, +1 that the richest people pay all the taxes and -1 that the poorest pay all the taxes.) Taxes on gambling, however, had a Suits Index of -0.489. In other words, they were near halfway to being completely unfair.

5. The deal includes some extra giveaways and expenses. For starters, the state is waiving sales taxes on “materials and supplies used or consumed in and equipment incorporated into the construction or improvement of the football stadium and stadium infrastructure.” At the current rate of 6.875 percent, that’s a loss of $67 million to the state treasury.

 What’s more, the stadium will be exempt from property taxes. Kiss more millions goodbye. Proposed legislation also authorizes the state to issue as much as $102 million more in bonds to pay deposits of reserve funds, pay for credit enhancement and other miscellania.

Finally, the bill leaves a crucial matter in the hands of the newly created Minnesota Stadium Authority: It, not legislators, will be responsible for making sure that the Vikings will be able to finance their portion of the facility, some $427 million.