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CHICAGO - Potential tax law problems have led Minneapolis officials to revise plans for paying off a proposed $42 million revenue bond issue that would be used in a public buyout of the Target Center arena.
On Thursday, the board of the Metropolitan Sports Facilities Commission, which would ultimately own the arena, unanimously gave preliminary approval to a new payment plan.
The plan would use revenues from a ticket tax and ticket surcharge and an annual state of Minnesota appropriation of $750,000 to pay debt service on the bonds. The bonds would also be secured with a pledge of revenues from sales taxes on Minneapolis' downtown hospitality industry.
A prior plan that had included a lease arrangement with the future owners of the Minnesota Timberwolves basketball team to help pay off bonds was dropped after bond attorneys advised that the deal might have to be sold on a taxable basis. Under the private-activity bond test outlined in the Tax Reform Act of 1986, bonds meeting both a private-use and private-security test would have to be issued on a taxable basis.
With the latest plan, the $42 million of bonds would be issued by the Metropolitan Council, an economic development agency in the Minneapolis-St. Paul area. Another $12 million of revenue bonds would be issued by the Minneapolis Community Development Agency, which would also refinance $19.9 million of outstanding tax increment financing debt, according to Bill Lester, executive director of the commission.
Lester said the TIF bonds, which were issued in 1989 to purchase land and prepare the site for Target Center. would be refinanced to extend their maturity to 30 years. The bonds are currently scheduled to mature in 2009, he said.
Richard Johnson, associate regional administrator for the Metropolitan Council, said that a portion of the TIF bonds would have to be sold on a taxable basis because of a private health club that is attached to Target Center. He added that the $54 million of bonds that would be issued by the council and the community development agency should be sold on a tax-exempt basis.
More approvals are needed before the bonds are issued and bond proceeds are used to buy Target Center for $54 million from its current owners, Marvin Wolfenson and Harvey Ratner, according to Johnson.
Johnson said the plan given preliminary approval by the commission last week was just another step in a process that must now include Minneapolis and state approvals, the development of contract and leases with the Temberwolves, and finalization of a funding plan and bond indenture.
In addition, the National Basketball Association must approve the sale of the Timberwolves. Lester said that Wolfenson and Ratner have a "virtually done" purchase agreement with Minnesota businessman Glen Taylor for the basketball team. The NBA will take up the proposed sale this week, Lester said.
If the deal for the public buyout of Target Center is ultimately approved, the three bond issues would be sold by a group of mostly Minnesota-based underwriters.
The deal would keep the basketball team in Minneapolis. The team's current owners had been shopping the team to other cities and last May received an offer to relocate the Timberwolves to New Orleans. However, the NBA refused to approve the sale to a boxing promotion firm in Louisiana.
