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Why did Minnesota United’s owners even bother asking for a property tax exemption for a new stadium?

After promising to spend $150 million of their own money on a stadium, the team’s owners aren’t going to walk away over a few million bucks in taxes. So why even go there? 

Unlike all who had come before, Bill McGuire said that he and his fellow Minnesota United owners would buy the land and build an open-air soccer stadium on their own dime.
MinnPost photo by Peter Callaghan

It seemed like simple math.

When the prospective owner of Minnesota’s prospective Major League Soccer franchise, Bill McGuire, finally said what he wanted from government when it came to building a prospective new stadium, the case was made that foregoing tax revenue wasn’t really foregoing tax revenue.

See, the argument went, if no soccer-specific stadium is built at a site near the Minneapolis Farmer’s Market, then no sales taxes on construction equipment and materials would be collected. And if a stadium is built without having to pay those taxes, then the government entities get exactly the same amount of revenue as they would have had nothing been built at all.

It’s the same math that’s used by politicians supporting all sorts of tax breaks — for everything from computer server farms to Super Bowl tickets to just about anything built in Greater Minnesota: if wasn’t here, there wouldn’t be any of that revenue anyway.

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As Billy Preston might say, nothing from nothing leaves nothing.

That’s why the “ask” by McGuire on behalf of himself and his prospective co-owners seemed to be somewhat warmly received, at least at first. Gov. Mark Dayton and some legislative leaders who had been saying “no, no, no” moved to, “well, maybe” once they heard what McGuire actually wanted — a sales tax exemption for facility construction materials; a property tax exemption; and limits on future local taxes — and, more important, what he didn’t. 

Unlike all who had come before, McGuire said that he and his fellow Minnesota United owners would buy the land and build an open-air soccer stadium on their own dime. They would own it and run it without the need for the fig-leaf of a public stadium authority or city ownership — both of which give control and most revenue to the teams. (It also means he won’t be getting lower-interest rates available when government sells construction bonds.)

But that fact, refreshing as it might seem, gave stadium opponents — somehow epitomized by Minneapolis Mayor Betsy Hodges — an opening. Hodges is opposed to any tax breaks for the stadium, be they sales, property, income, whatever. And she gets points for consistency, since she didn’t support the Vikings stadium deal while on the city council, either.

But in an official statement, prepared by city staff but posted on her private web page this week, Hodges showed how the old argument about the second part of the McGuire request — the property tax exemption — doesn’t hold up. Turns out that the city is, in fact, already getting property taxes on the private parcels targeted for the soccer stadium.

In fact, if the purchase price for the land is around $30 million (a number McGuire revealed earlier this week), taking the land off the tax rolls would mean a loss of revenue of around $350,000 a year. And letting McGuire (not to mention his partners, which include the Pohlad family, which owns United Properties) develop the land tax free ends the chance that the city of Minneapolis could collect the enhanced property tax assessment from another private-but-taxed development.

Hodges went further, mixing some solid arguments with some peripherals (wondering why the new team couldn’t play at another facility; stating that a new stadium could compete with city-owned Target Center for concerts) in a kitchen-sink anti-stadium treatise.

But by piercing the property tax provision, she pointed the way for other attacks. While lots of businesses in Minnesota get sales tax breaks, none apparently get an exemption from paying property tax. There’s a reason for that, offered Minneapolis City Council Member Andrew Johnson — the state constitution seems to prohibit it.

If McGuire wanted the sort of property tax breaks that all the other stadiums in the Twin Cities get — no sales tax as well as no property tax — he would need to have it under public ownership, as is the case with those other facilities.

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In that scenario, though, McGuire and his co-owners would not own the land under and around the stadium. And though Hodges et al would still assuredly be opposed to that arrangement, at least there would be a precedent for it. There is no precedent for a privately owned anything getting a property tax exemption.

So is this all just a real estate play? For McGuire, there is certainly some sort of beneficence in coughing up the $100 million franchise fee to MLS, the $30 million for the land and the $120 million for an 18,500-seat-plus-standing areas-plus suites stadium. And since MLS teams don’t make money, some annual losses should be included in the budget. But couldn’t he and his fellow owners make some of it back by developing the area around the stadium (which is near the proposed-but-not-funded Southwest LRT light rail line)?

Or maybe the owners just figure it wouldn’t be fair for them to pony up for a stadium that jump- starts redevelopment in a part of town that needs it — and then get hit with much-higher property tax payments on much-higher-valued land they helped make happen.

Either way, it’s not much money. Sales tax on a $120 million stadium wouldn’t be much more than $3 million. And property taxes on a place assessed at $150 million or so would be in the range of $1.5 million to $2 million a year.

The Minnesota United ownership group has a lot of money, of course, and it could be argued that at least two — the Pohlads and Glen Taylor — were made significantly richer when the teams they own, the Twins and Timberwolves, respectively, received new or renovated taxpayer-supported facilities. Spending some of that money on a new sports team is either poetic justice — or an indirect means of putting tax dollars into another new stadium. Or both.

So why does McGuire bother, with the aggravation and the personal attacks for a few million bucks? If other professional sports team owners in other cities are a guide, it may just a matter of getting a little bit of love from a place you think you’re helping out. And given how much the other sports owners are getting (hello, Wilfs), it might just be embarrassing to be the only team getting absolutely nothing at all.

McGuire now must be wondering why the most-generous offer by any owner in Minnesota yet wasn’t better received. He has to get his arms around the fact that politicians who were saying “no-direct subsidy” are now refusing to take ‘yes’ for an answer. Then he can either walk away or carry on.

So what’s the endgame? Any deal would take legislation at the state level, and Senate Majority Leader Tom Bakk — not exactly a soccer enthusiast, anyway — said he wouldn’t move without support from the city of Minneapolis, which is divided. And that’s for the sales tax part only. As for the property tax — that might take changing the state constitution, and it’s hard to imagine a Sports Owners Relief Amendment having much (or any) chance at the polls.

At the press extravaganza announcing the franchise, both McGuire and MLS Commissioner Don Garber didn’t seem all that concerned that a stadium wouldn’t happen. Only when pressed did Garber even acknowledge something resembling a deadline for finalizing a stadium deal, and he always followed any gloom and doom talk with a forceful statement of his confidence in McGuire, et al. So the July deadline that is being tossed around is a phony —  or at least flexible — one. Having come this far and offering up this much private money, it would be a shock for the owners to walk away over a few million bucks in taxes.