If all goes as planned, the St. Paul Saints will open their 2015 baseball season at a brand new 7,000-seat stadium in Lowertown. Contributing to the $54 million cost of the regional ballpark will be $25 million in state bond funds, $10 million from the Saints, and $17 million from the City of St. Paul, which will own the facility. The project is a high- profile example of the public-private partnerships in real estate that are proving successful around the state.
Less well-known, but nicely illustrative of the financial mechanics that can underlie such deals, is the story behind the $2 million shortfall suggested by the numbers above.
The new ballpark will rise on a site formerly occupied by the old Diamond Products building. The 600,000-square-foot industrial dinosaur sat empty for several years before it was purchased July 31 for $2 million by the Saint Paul Port Authority, an economic development agency established by the Minnesota Legislature in 1932.
After the purchase, the Port Authority immediately “flipped” the building to the City of St. Paul in a land-swap deal. In return, the city agreed to deed to the Port Authority the Saints’ current field, Midway Stadium, and its 12-acre site in the industrial area of Energy Park.
When the new ballpark is completed, the Port Authority will knock down Midway Stadium, clean up the Energy Park site, sell it for commercial or industrial use, and use the proceeds to repay itself for buying the Diamond Products building.
The beauty of the deal from the standpoint of all that is right and good, maintains Port Authority President Louie Jambois, is that Midway Stadium is not only old and deteriorating, it’s in the wrong place to begin with. “Midway is on a site that should house industrial development. Diamond Products is on a site that should house a ballpark,” he says.
Then there are the economics of the deal. “Our history suggests,” Jambois says, “that we can put in at least a 200,000-square-foot building [at Energy Park] and create 200 to 300 private-sector jobs.” The development also is projected to bring in an estimated $250,000 in annual property taxes to the city, plus additional payroll taxes to the state.
The land swap with the Port Authority meant that St. Paul could apply for $25 million in state bond funds, not $27 million. The projections about jobs and tax revenues springing from Energy Park also “made the city’s application [for the state money] stronger than it otherwise would have been,” Jambois says.
Making Things Happen
Elsewhere in the state, public officials and community development specialists are similarly adept at finding ways to make projects happen. A Cambridge business, National Recycling, Inc., finished construction in 2012 on a new 47,000-square-foot building on land purchased from the city with the help of tax-increment financing. The company had to pay only $100,000 down for the land, says the City of Cambridge’s economic development director Stan Gustafson. Lower upfront land costs allow a business to “focus on putting money into buildings, equipment, and employees,” Gustafson says. At the same time, “tax-increment financing means that the city [later] will get paid back.”
In Lutsen late last year, the Lutsen Mountain Corporation, which runs the Lutsen ski resort, received loans from its electricity suppliers to buy new energy-efficient snow-making machinery. The Arrowhead Electric Cooperative gave the company a loan of $50,000, and Arrowhead’s electric wholesaler, Maple Grove–based Great River Energy (GRE), chipped in with a $350,000, low-interest loan via an energy-efficient equipment program.
Together those loans will cover half the cost of the new snow-making equipment, says GRE’s economic development director Tom Lambrecht. By using less electricity and water, the new machines are expected to achieve a 52 percent increase in efficiency. That, Lambrecht says, will help GRE and Arrowhead meet conservation goals set by the state’s conservation energy policy. A local economy heavily reliant on skiing should benefit as well.
GRE supplies wholesale power to 28 electric cooperatives in Minnesota. One of them, Steele-Waseca Cooperative Electric, played a role in a major economic development project in Faribault that involved multiple players.
Sage Electrochromics, Inc., a maker of programmable building glass, is constructing a new 324,000-square-foot high-volume manufacturing facility next door to its original 60,000-square-foot building in Fari-bault. Scheduled for completion in the first half of this year, the project promises to create at least 145 new jobs.
Sage’s decision to remain in Faribault while quintupling the size of its facility was far from casual. The company hired a site-selection firm that solicited economic incentives from locales across the country. To keep Sage at home, the City of Faribault, Rice County, the state, and other entities chipped in on a package of tax breaks, grants, and loans totaling $17 million in value to the company, says Rice County’s economic development director Deanna Kuennen.
Generous as that may sound, the offer fell millions of dollars short of the incentive package offered by a town in New York that emerged as Faribault’s top competitor. But the Minnesotans finally carried the day, Kuennen says, partly because Sage “knew their workers here.”
Local and state tax breaks and tax credits for job creation, available through Minnesota’s Job Opportunity Building Zone (JOBZ) program, came into play when Faribault was able to transfer JOBZ status from five acres elsewhere in the city to the Sage building site. JOBZ is scheduled to expire in 2015, but a special exemption by the state Legislature extended its benefits for the Sage project until 2020, Kuennen says. The total estimated value of tax breaks and credits to Sage through 2020 is $10.3 million.
As a rural utility provider, Steele-Waseca Cooperative Electric has access to loans from the U.S. Department of Agriculture’s (USDA’s) Rural Development Program. Steele-Waseca, backed by GRE, guaranteed $740,000 in low-interest loans from the USDA for the Sage project. Other contributors included the Faribault Industrial Corporation, a nonprofit economic development entity, and the State of Minnesota, which provided a training grant in addition to the JOBZ incentives.
Because the Minnesotans knew “there was a big gap between us and [the competing town in] New York,” Kuennen says, the Rice County commissioners—through the county’s Housing and Redevelopment Authority—did something unique in her experience: “They stepped forward with a $1 million loan from general fund dollars. A million dollars is a lot to Rice County. That speaks to our commitment to growing quality jobs.”
Projects the size of the Sage expansion are rare in outstate Minnesota communities. A far more typical example of the kinds of help businesses receive from local governments, Kuennen says, is a start-up company called Living Greens Farm. The Faribault company will engage in “aeroponic” farming, growing leafy green vegetables in a warehouse, their roots not in water but in a moistened textile material.
Last year the principals invested $4.1 million to buy an existing 30,000-square-foot building, plus land, improvements, and equipment, Kuennen says. The city and county helped out with property tax abatements worth up to $100,000 over five years.
Tax abatements are popular mechanisms to encourage development. So are the USDA loans available through rural utility providers, says GRE’s Lambrecht. At least two-thirds of GRE’s 28 cooperatives participate in the program, he says. Since 1999, GRE has been involved as a backer in about 65 USDA loans, 11 of them aimed at hospitals or clinics. What’s on the near horizon? “We might do additional financing in USDA for Sage through Steele-Waseca,” he says.
As a metropolitan agency, the Saint Paul Port Authority is not eligible for USDA’s rural loan program, but it has 80 years of experience finding money for redevelopment projects. “We have a small property-tax levy that we use to pay back bonds we sell,” Jambois says. “With [the bond proceeds], we buy property to redevelop. Then we use our redevelopment know-how as bait to attract funds from the national, state, and county levels.”
Partly because it cleans up a lot of contaminated “brownfield” sites, Jambois says, the Port Authority has received money over the years from the Environmental Protection Agency and the U.S. Department of Energy. It has received allocations of new markets tax credits from the U.S. Treasury Department. And it has tapped into funding from a long list of state and regional sources. Those include Ramsey County, the Metropolitan Council, the Minnesota Department of Transportation, and the Minnesota Department of Employment and Economic Development.
“But it’s all about setting the stage for private-sector investment,” Jambois says. The Port Authority specializes in turning obsolete, decaying buildings into shovel-ready sites for new development. “If a company has a choice of a shovel-ready site versus a contaminated brownfield site,” he says, “they’ll take shovel-ready every time.”