"My city went bankrupt and all I got was discounted water park admission."

Mall of America, the mega-mall here in my home state of Minnesota, has not made a mortgage payment for two months. From CNBC:

The biggest shopping center in the country, The Mall of America, has missed two months of payments on its $1.4 billion mortgage, a sign of just how much retail real estate owners are reeling during the coronavirus pandemic.

The mall, operated by private developers Triple Five Group, skipped mortgage payments in April and May, according to Trepp, a New York-based research firm that tracks the commercial mortgage-backed securities, or CMBS, market.

Of course, MOA will be okay in the short-term as any mortgage holder wanting out of that bad loan can simply offload it to the Federal Reserve (at a profit). The Fed seems content to take all the losses in their updated No Wealthy Investor Left Behind policy. We’ll see if that works out long term (I’m skeptical).

I’m more interested in the very strange public-private partnership project known, in humble Minnesota fashion, as the Waterpark of America, a massive waterpark complex proposed on property adjacent to MOA. To say the funding is strange is an understatement. From the Minneapolis Star Tribune:

The payments to the mall are one element of an unusual financing deal with little precedent in the state. Under the arrangement, a Louisiana-based nonprofit organization will borrow money from a public agency in Arizona to build the glassy, $260 million theme park. That borrowing hinges on a city pledge to raise sales taxes at the mall if the water park doesn’t earn enough to pay its debts.

City officials have long assured the public that taxpayers are at no risk, but that has never made any sense. If there is no risk, why would city support be required? It wouldn’t be. Stated another way, the city and its taxpayers are backing the project and that is the only reason it went forward.

The city has the ultimate risk and, as is usual with public-private partnership in an age of financial schemes and frauds as economic policy, the taxpayers have little upside. Here’s how it was described in the Star Tribune:

Ticket sales would pay for the operation costs and the project’s debt.

If sales are low, the city could impose new sales taxes on Mall of America customers to cover the shortfall.

The city’s update says that “the biggest risk is probably the water park not meeting revenue expectations.”

Rudlang said there was a “low risk” of that happening. He said the city would not raise property taxes to pay for the project.

We’re learning exactly what “low risk” can mean (and it’s not what many thought). The city is supposed to raise sales taxes at the mall if the waterpark doesn’t earn enough. Well, sales taxes could be a zillion percent and, with no transactions happening at the closed mall, and little chance they will get back to pre-pandemic levels anytime soon, that’s a pretty hollow guarantee.

In case of a shortfall, the city was to raise those sales taxes and the mall would not fight it. That was the agreement. The mall doesn’t need to fight it—there’s no money to be squeezed from MOA—and so Bloomington has to come up with the money some other way. That’s because they are the backers of the project. Their residents are on the hook. That’s what it looks like to take risk.

MOA makes up 10% of the city of Bloomington’s tax base (or used to). In theory, without the sales tax from MOA, with a delinquent taxpayer whose property is dropping in value in a market saturated with unproductive retail space, the city is required to backstop debt payments for a water park that may never get built. I’m glad I don’t live in Bloomington.

I’m not sure what agreements they have already signed, but they should do everything they can to back out of this deal. It was reckless from the start. In a metaphor for modern America, a humble city on the outskirts of Minneapolis/St. Paul couldn’t be satisfied with having the largest mall in the country, and all the riches that came with it. They needed just a little bit more.

Council Member Patrick Martin, who represents the district that includes the Mall of America, called nonprofit ownership a “clever structuring model.”

Martin said he’s pleased “that it’s been a priority to make sure the Bloomington taxpayers aren’t on the hook for a project pretty much to benefit Mall of America and the surrounding community.”

He still wants to know if entry into the water park would be offered to locals at a discounted rate.

New t-shirt for Bloomington residents: “My city went bankrupt and all I got was discounted water park admission.”

Cover image via Wikimedia Commons.

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