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Editorial: Why tax a business to aid its competitor?

Megamall expansion ought to pay its way.

Last update: May 13, 2008 - 6:54 PM

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"The mall claims that the subsidy is going to parking ramps and not directly to our competition. As a developer, let me assure you that all development costs are fungible. Any subsidy that goes to any part of the project is a subsidy to all parts of the project.''

Water Park of America owner Jeffrey Wirth, in a May 9 letter to the Star Tribune

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You've probably visited or noticed the Water Park of America along Interstate Hwy. 494 in Bloomington. If you're stuck in traffic, you can pass the time counting the number of bodies that shoot through the huge tubes that jut out from the building.

Developer Jeffrey Wirth opened Water Park of America in 2006, and his hotel and indoor park no doubt benefit from the tourists drawn to his neighbor to the east, the Mall of America. That does not mean he wants to help pay for the Phase II expansion of the megamall, which would include a competing Great Wolf Lodge hotel and water park.

That's one of the key problems with tax subsidies for individual businesses: There are clear winners and losers, and the losers typically don't have much say in things.

The Legislature this week made a wise decision not to tap the metrowide fiscal disparities pool to fund a parking ramp as part of the Phase II project. As argued here previously, that wrongheaded plan would have forced property owners throughout the metro to subsidize the expansion, creating a precedent that would have had developers scrambling to be the next in line for tax breaks.

The alternative legislation making its way through the Capitol late Tuesday wasn't any more palatable. It would allow the city of Bloomington to fund the parking structure by imposing a tax on admissions, recreation, food and beverages in a special taxing district that could include all or part of the city. State revenue bonds issued for the mall would be repaid from Bloomington's newly generated tax streams.

Limiting the tax plan to Bloomington makes more sense than tapping the fiscal disparities pool. That is, unless you're Wirth, or the owner of any other business that would end up taking the tax hit. Wirth estimates that his tax bill would increase as much as $400,000 annually. That's a big tab, especially when the benefactor is a competitor with its own water and tubes.

An interesting question is whether the Mall of America's owner, Canada-based Triple Five, actually needs $350 million in public subsidies for a parking ramp and infrastructure to secure financing for the planned $2.1 billion, 5.6-million-square-foot expansion.

The Star Tribune's Susan Feyder reported Monday that the annual net operating income for the mall was $59.4 million as of Aug. 31, 2006, according to a Securities and Exchange Commission document that revealed more about the mall's finances than we've known previously. Triple Five is privately held, and company representatives have declined to provide updated numbers. They have, however, said the public aid is essential to the expansion. Whether that's true may become clearer if the Bloomington tax plan proceeds, because it would require Triple Five to open the mall's books for state inspection.

Whatever the role of public money, market conditions -- and the availability of financing -- are key factors as well. If the Great Wolf Lodge, Bass Pro, Marriott and other prospective tenants think there is money to be made in Bloomington, and Triple Five and its lenders agree, the project will go forward.

The Phase II expansion of the megamall would benefit Bloomington, the Twin Cities and the state, not to mention the thousands of workers who would build the project and those who would get jobs in its stores, restaurants and hotels. But the project should rise or fall on its own merits, not on the backs of Bloomington's other businesses.

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