After the Deadline: What Now For MLS in Minnesota?

Since December, when we last discussed the prospect of Major League Soccer (MLS) coming to Minnesota, much has changed.

In March, Bill McGuire’s Minnesota United FC group was awarded an expansion franchise contingent on getting an agreement in place for a soccer-specific stadium to be constructed near the Farmer’s Market on the outskirts of downtown Minneapolis.  MLS Commissioner Don Garber, after multiple questions, finally conceded a July 1 deadline for United to get such a deal in place.  United was coy at the announcement about what form the stadium proposal would take, and if they would be asking for a public contribution.

Three weeks later, United released their plan.  The public contribution consisted of three components:

  • A sales tax exemption on construction materials and supplies (estimated at about $3 million)
  • A property tax exemption on the stadium site in perpetuity (currently, this land generates $350,000 in tax revenue annually and would bring in between $1.5 and $6 million annually once the stadium was constructed)
  • Exemption from any future unspecified local taxes (such as a ticket tax, or excise tax on luxury suites)

Compared to the hundreds of millions in public subsidies for Target Field and the new Vikings stadium, United’s ask was rather small. But both the sales tax and property tax provisions required legislative approval.  With only a month left in a highly contested legislative session, not one of Minnesota’s 201 legislators was willing to author a bill to support United’s request. Combined with reaction from Minneapolis leaders ranging from Mayor Betsy Hodges’s hostility to a wait-and-see approach taken by most of the City Council, House Speaker Kurt Daudt, Senate Majority Leader Tom Bakk and Governor Mark Dayton were free to ignore United’s request when crafting the end-of-session omnibus bills that were finally passed in June’s special session.

As the calendar flipped to July, MLS Deputy Commissioner Mark Abbott kept up the sort-of pressure from the league, noting that the deadline had passed, but promising to come to Minnesota to help the United in their talks with St. Paul leaders about possible sites there (such as the bus depot at Snelling Avenue and I-94 or the Sears site near the Capitol — both near the Green Line and in diverse, millennial-filled neighborhoods).  Meanwhile, the city of Minneapolis has created a working group to examine possible approaches to solve the stadium conundrum.

From United’s perspective, the property tax proposal is the key element. With most MLS payrolls in the $3-5 million range, the team is facing the prospect of paying as much in property tax as they do on players, which would doom the team to red ink in perpetuity.  However, the property tax provision is also the hardest for local officials to swallow because the loss of a few million dollars in property tax revenues would have to be spread out across the rest of the city’s taxpayers.  The “in perpetuity” part of the property tax exemption is also an issue — even when mechanisms like tax-increment financing are used to exempt new developments from property taxes, that exemption is only temporary, and the taxes blink back on after a set period of years.

United has floated some possible workarounds to this issue, including giving up ownership of the stadium to a public entity (thereby taking it off the tax rolls, like the other area stadiums) or continuing to pay the current $350,000 annually in perpetuity.

So what happens next?  The fact that MLS hasn’t pulled the franchise yet and Abbott’s promise to come to town means that the July 1 “deadline” was not hard-and-fast.  But, realistically, United needs to have a solid plan — with sponsors — in place before the 2016 legislative session gavels in on March 8.  To ensure legislative approval, United is going to need the sign-off of the appropriate local governments as well.

This means that Minneapolis and St. Paul are going to be competing against each other to nail down plans for the stadium first, which is ultimately going to come down to balancing competing interests.  Of the two St. Paul sites, the Bus Depot is the most viable.  It’s already owned by a government agency, meaning no property tax is collected on the parcel already, and its location right along I-94 makes it attractive for those who would drive to the games.  The Sears site, meanwhile, is owned by private developers who have looked to build additional retail and apartments on the property.  Modifying those proposals to include a stadium could be tricky given the timeframe.

What it will come down to, then, is how far and how capably United wants to push from the Farmers Market location in Minneapolis. Its proximity to Target Field, Target Center, and the downtown core make it an advantageous location over the Bus Depot, which is nearly four miles away from the core of downtown St. Paul.  But the logistics of working a deal may be easier on the St. Paul site because of the property tax issues and the reluctance (so far) of Mayor Hodges to step out in favor of the United proposal.  St. Paul Mayor Chris Coleman, who shepherded the new CHS Field for the St. Paul Saints through a tangled approval process, is likely to step to the fore in pushing such a deal to a conclusion — making St. Paul the slight favorite at the moment to land MLS in Minnesota.

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