A stealth plan to transform Minneapolis' ailing Block E into a gambling and entertainment hub that could draw millions of tourists from across the Upper Midwest is about to land at the State Capitol.

Alatus LLC, the Minneapolis developer that bought the downtown entertainment complex at a deep discount last summer, has been meeting quietly with downtown business leaders since last summer on plans for a Bellagio-style, state-run casino, along with privately owned retail and restaurants.

On Wednesday, company officials, along with House Rep. John Kriesel and Sam Grabarski, head of the Minneapolis Downtown Council, presented plans for the luxury casino they say will yield thousands of jobs and millions in sales -- all without public funding. The working name of the redevelopment: Minnesota Live.

Kriesel, a freshman Republican legislator from Cottage Grove, will carry the House bill needed to create a downtown casino. Like other Republicans, Kriesel opposes Gov. Mark Dayton's plan to raise taxes as a way of alleviating the state's $5 billion deficit, but said he could see expanded gambling as part of a final budget solution. Sen. Doug Magnus, an assistant majority leader, will carry the bill in the Senate.

"I know the governor wants a little more revenue," Kriesel said. "You know what? I'm all about compromise." Magnus said he supports the proposal because "I really do believe a strong, vibrant Minneapolis is good. It's one of the keys to the state."

Magnus and Kriesel's task is a delicate one. Until now, casino gambling has been the exclusive province of the state's American Indian tribes, who until recently thought their biggest fight was against a proposal to put video slots at horse-racing tracks.

The bill faces some high hurdles. The GOP-dominated Legislature remains divided on expanded gambling. Minneapolis Mayor R.T. Rybak has said he does not support it.

But the proposal also represents an opportunity to renew economic development downtown, create a new tourist attraction and provide an ongoing stream of gambling revenue that would, for the first time, be subject to state and local taxes.

An architectural rendering shows a dramatic, four-story glass atrium where the defunct GameWorks once stood, with waterfalls spilling across a rooftop terrace. The Hennepin Avenue casino would be within walking distance of the Target Center, the new Twins ballpark, and both light rail and the Northstar commuter line.

The bill would require the state lottery board to put out a request for proposals for the casino management contract. Alatus would respond with plans to open part of the project as early as next spring, with completion targeted for 2013. The Alatus team would include Minneapolis-based Ryan Cos. and Bruce Kaplan, a CB Richard Ellis retail specialist who played a major role in the $300 million transformation of Chicago's Navy Pier into a popular downtown tourist destination. The project would require a minimum private investment of $200 million.

The state lottery board would have full control of the casino and would disburse the revenue.

Surprising findings

Bob Lux and Phillip Jaffe, principals of Alatus, have a clear view of Block E from their offices on the 28th floor of the U.S. Bancorp Center.

They first started considering the casino idea last spring, before they bought the property for a mere $14 million, along with $28.5 million in tax increment financing repayments.

By September, they had hired the Innovation Group, national gambling consultant, to study the idea. Innovation estimated that a casino with 3,200 gambling positions -- chairs at a slot machine, or table, for instance -- and other games could draw 5.6 million people to downtown Minneapolis from across a five-state region a year.

"It was astounding to us," Jaffe said.

Lux said they envisioned a project like no other in the state. "We want people at 7 o'clock on a Sunday evening when they're driving back to Minot to say, 'Wow, that was cool. We want to come back.'"

Innovation projects the casino would create up to 2,800 full-time gambling jobs, up to 625 construction jobs and about 1,000 indirect jobs. The traffic would be projected to generate a need for 84,000 additional hotel room nights, expanding the occupancy rate in downtown Minneapolis hotels by about 5 percent annually.

That traffic would also produce a stream of gambling tax revenue for state coffers -- a one-time fee of $50 million initially and an ongoing tax stream of about $125 million a year once it was up and running. Lux estimates the state would get an additional $5 million in tax revenue just from the additional traffic in parking ramps

The big numbers give pause.

"I'm always a skeptic about numbers like that," said Barbara Johnson, president of the Minneapolis City Council. "But I was wrong about Mall of America." Johnson said she has an "open mind" about the project because Block E needs something completely new.

"We need to have attractions in our downtown that keep people down here," she said. "This is just another piece of that picture that a big city presents."

Early projections that the Bloomington megamall would attract 40 million people a year within five years drew widespread criticism at the time. But the mall hit that mark and now logs 43 million visitors a year, said Maureen Bausch, the mall's executive vice president of business development.

Issues downtown

Katherine Tinucci, spokeswoman for Gov. Mark Dayton, said the governor would not comment until he had seen the whole plan. As a candidate Dayton had proposed a state-run casino at the Mall of America.

John McCarthy, executive director of the Minnesota Indian Gaming Association, said he fears a downtown casino will take jobs from Indian casinos and create logistical problems downtown.

"Where are you going to park? What about the crime issue?" McCarthy said.

Lux and Jaffe said they don't think Block E would compete with tribal casinos because they are targeting a younger, more affluent crowd. The demand for casino parking wouldn't be concentrated at one time, as it is with the ballpark traffic.

Andrea Christenson, a downtown retail broker for Cassidy Turley, said she initially opposed the casino because she worried it would prey on those who couldn't afford to gamble and would be depressing. After hearing the research Alatus has done, Christenson changed her mind.

"This could be a huge game-changer," she said.

Eric Roper• 651-222-1210 Jennifer Bjorhus • 612-673-4683