Newly released e-mails and other information are casting some doubt on the financial performance of two parking ramps crucial to a $62 million publicly financed development near the Minnesota Vikings stadium.
The documents reveal that city parking officials felt first-year profit projections for the ramps were overly optimistic. They also show the Vikings are entitled to free usage of 1,400 spaces on game days, for any future professional soccer games and up to 10 other events.
While the ramp revenue is needed to pay $115 million in city debt including interest over 30 years, the long-term risk for taxpayers is far from certain. Ryan Companies, the lead developer in stadium-area construction and initial ramp manager, has agreed to back any shortfalls for at least a decade or until the ramps twice turn a large annual profit.
“The city is effectively totally immunized from any start-up risk. Zero. Doesn’t exist,” said the city’s chief financial officer Kevin Carpenter. If the city has to cover shortfalls after Ryan’s guarantee expires, he added, later surpluses will be recouped to make it whole again.
Hundreds of e-mails and spreadsheets obtained by the Star Tribune illustrate the monthslong scramble in 2013 to finance a new parking ramp and park in Downtown East. The deal attracted a new Wells Fargo campus and residential development now under construction, which backers have noted will boost tax revenue.
Parking revenue from about 2,000 stalls at two ramps — one new, one existing — are earmarked to pay the debt payments.
Those documents show the two ramps are collectively projected to generate much more profit in 2016 than any in the city’s existing fleet of parking facilities — though two of those 13 facilities were more profitable on a per-space basis in 2013. Most of the city’s ramps have fewer stalls, but in 2013 the comparable 2,020-stall Leamington ramp generated only 58 percent of the profits expected from Downtown East.
Rising projections for the ramps were among several factors that ultimately helped finance officials close the projected deficits over the life of the deal.
Binding the plan together is Ryan’s guarantee, which covers debt payments until at least 2026 — continuing until the ramps twice turn a $4 million profit. That could leave Ryan paying debt for the life of the deal if the ramps perform poorly, unless spikes in profitability like 2018’s Super Bowl allow them to exit earlier. They also pocket any excess revenues during that time.
Council Member Cam Gordon was most concerned about the provision in a 2014 parking agreement granting Vikings VIPs free parking. He said a more general term sheet the City Council approved in 2013 did not make clear that the VIPs would park free.
“It doesn’t really make a lot of sense to me that we’re giving away free parking,” Gordon said. “It’s especially irritating because it looks like we’re giving it away to maybe some of the wealthiest, more affluent folks too. And that doesn’t really seem equitable, either.”
Michele Kelm-Helgen, chairwoman of the Minnesota Sports Facilities Authority, said the ramps are included in the Vikings’ annual rent payments of about $10 million.
City staff ran through more than 60 different financing scenarios between April 2013 and January 2014, many of which resulted in deficits for the city. Fluctuations were driven by changing debt costs, updated ramp revenues, the length and amount of Ryan’s guarantee, and potential profit-sharing with the authority, which will own the ramps. The final runs showed a surplus, due in part to lower long-term debt costs and higher parking profits.
“A key driver of financial consequence from the project, though largely out of city control but for planning and zoning actions to limit competing parking facilities in [the] area, is ultimate performance of the parking ramps,” Carpenter wrote to staff in mid-October, when several scenarios still showed parking revenue failing to cover debt payments.
But the manager of the city’s parking ramps, Tim Blazina, wrote shortly after that “revenues and expenses are very aggressive” in 2016 profit projections created by expected ramp operator Denison Parking.
“The proposed revenues do not reflect the standard 3 to 5 year growth, which we know will occur,” Blazina wrote. “The expenses reflect a very simple breakout of expenses which appears very small in my opinion.”
Blazina specifically cited low anticipated costs for security, utilities, wages and capital improvements. He attached a budget for the city’s Leamington ramp, showing its operator pays $334,875 for gas, electric and water. The cost of utilities at the two stadium ramps was projected to be just $98,592.
Atif Saeed, Blazina’s former boss, recalls agreeing with Blazina’s take. “Based upon on our analysis and our comparative … It seemed that they were a little aggressive,” said Saeed, who is now the transportation director at Atlanta’s primary airport. “That is not to say quite honestly that it couldn’t be justified, it’s just that we never really saw a justification per se.”
Ryan Companies and Denison Parking did not return requests for comment.
As the proposal continued to evolve, the first-year projected profit on the ramps edged up from about $3.2 million to $3.5 million in the final figures. Those final estimates showed profits growing by about 2 percent each year until 2026, when Ryan’s guarantee would expire and growth dipped to 1.7 percent a year — reaching $5.6 million profit in 2043. The city’s annual debt payments would reach about $5.2 million at that time.
“[The net profits] went up because people got more comfortable and did more scrubbing of numbers to say, ‘What’s a reasonable set of revenue assumptions?’ ” said Carpenter, adding that the city staff was comfortable with the 1.7 percent growth rate. “They weren’t driven up to close a gap in isolation, because nobody’s that stupid to say ‘I’m going to put unreasonable stuff out there so I can screw myself later.’ ”
The city also sketched out what might happen if annual ramp profits fell from $4.1 million to $3 million after Ryan’s guarantee expired. It would leave the city with a $31 million shortfall.
Jon Fletcher, general manager of Minneapolis Parking, which owns six ramps in the city, agreed Ryan’s first-year projections appeared to underestimate the costs needed to operate the ramps. Expenses typically eat up about 30 to 35 percent of income, he said, but it was just 16 percent at the larger ramp in October projections. He said, however, that the growth of Downtown East and diminishing number of surface lots bodes well for the ramps’ profitability in the long term.
“Downtown East is on the upswing,” Fletcher said. “With the new office and residential under development and proposed, I would not be surprised if the income exceeded the projections in later years.”