Would downtown Minneapolis casino be a jackpot for Minnesota?

Gov. Dayton says the state should get at least half the revenue from a proposed Minneapolis casino.

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Slot machines, like these at Treasure Island Resort and Casino near Red Wing, would be a major draw should a casino be built on Block E in downtown Minneapolis.

Photo: Renee Jones Schneider, Star Tribune

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Gov. Mark Dayton said Wednesday a proposed casino project in downtown Minneapolis would have to split more of its revenue with the state, suggesting half of the proceeds should go to government coffers.

The share is substantially more than what casino-backers rolled out Wednesday morning at a celebratory press conference on Block E in Minneapolis, heralding an initiative to transform the beleaguered downtown mall into a glassy, Las Vegas-style casino.

The enabling legislation, which two Republican lawmakers are expected to introduce Thursday, caps the state's take at about 25 percent and sends about 70 percent of the estimated $400 million in annual revenues to whoever develops and operates the facility. Dayton dismissed the state's 25 percent take as "low and unacceptable."

"If we're going to do it, I want to maximize the state's take of the revenue," Dayton said of gambling proposals. "We certainly ought to get at least half."

The downtown project would be a major expansion of gambling in the state, which has 18 casinos, all owned by tribes. Proponents say the proposed casino, which would be state-owned, could generate $400 million in revenue a year and create 2,400 gambling jobs. That sort of economic impact could prove enticing for state lawmakers still wrestling with a $5 billion budget deficit, though many lawmakers in both parties oppose expanding gambling.

DFL Sen. Linda Higgins, who represents downtown, said she was skeptical that the facility would deliver on the promises of the developers.

"It'll bring pawn shops to downtown, if what has happened elsewhere is accurate," Higgins said.

John McCarthy, executive director of the Minnesota Indian Gaming Association, said a casino to revitalize downtown Minneapolis could be a slippery slope. "If they do this for Minneapolis, hello? Rochester needs one, St. Cloud needs one. How can they say no to other cities?" McCarthy said.

But the project won't go anywhere if proponents and the governor don't agree on how to split the proceeds.

Bob Lux, a principal at Alatus LLC, the developer pitching the project, said the state should hire professionals to negotiate a rate. The private-public split is appropriate given the amount of money -- at least $200 million -- the chosen developer will have to invest in the project, he said.

"It's a fair number for the state and it's a fair number for the facility so that it can actually happen and be successful," Lux said. "We have to realize that we are competing against existing facilities that have no tax rate and have paid-for facilities."

Tax rates vary from 8 to 40 percent for casinos in other states, and the rates are usually dictated by the capital cost of the facility, Lux said, adding that a number of the casinos taxed in the 40 percent range have failed.

Richard Schuetz, a former gaming industry executive in Las Vegas who works as a consultant, called a 25 percent tax rate "comparable" for emerging casino markets. Such a rate, however, would be too high in Las Vegas where casinos are taxed at less than 10 percent, he said. In Kansas, the rate is 27 percent.

And 50 percent? "If the governor does that, he's going to have a very, very mediocre casino development," Schuetz said.

As drafted, the bill would send most of the Block E casino proceeds earmarked for the state into the state's general fund. That, too, will stir debate. Assistant Majority Leader Doug Magnus, a bill sponsor, said he would like to see most of that devoted to transportation and infrastructure projects around the state.

Magnus initially said that leadership in the Senate supported the casino project, which would give it more legs than other proposals to expand gambling.

"Our leadership in the Senate spent significant hours talking about this and talking about our plans and thoughts," Magnus said. "And so we made the decision, our top leadership people, to move ahead ... with this Block E plan."

But Senate Majority Leader Amy Koch disagreed with Magnus' description, emphasizing that the leadership hasn't taken a position on the bill. Magnus later said they supported him carrying it, but not necessarily the bill itself.

"I'll look at it," Koch said. "But I'm not supporting new revenues in this budget."

House Speaker Kurt Zellers said he wanted to review the casino bill -- which few have read in its entirety -- before rendering judgment. But if the governor doesn't plan to veto the bill, Zellers said he would consider it.

"The devil's always in the details."

Rachel E. Stassen-Berger, a staff writer, and McKenzie Martin, a University of Minnesota student on assignment for the Star Tribune, contributed to this report.

Eric Roper • 651-222-1210

Jennifer Bjorhus 612-674-4683

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