If you did not know any better, the presentation earlier this week at Bloomington City Hall from financier Steve Hicks would have seemed normal, maybe even humdrum.
Developers and financiers put up pictures of their projects and talk about their experienced teams all the time in city halls.
Hicks was not as slick as some, so he managed to come across as even more credible.
But we know better. Hicks’ Provident Resources Group is not a conventional real estate firm at all, but a Louisiana nonprofit.
That nonprofit is at the center of something called the South Loop Waterpark, and a nonprofit owner is just one aspect of the project that is not just odd but plain wacky.
Provident doesn’t serve one charitable mission but five, with one called “lessening the burdens of government.” Taking on the risk of a big entertainment venture isn’t a typical burden for local governments anywhere, but it has turned into one for our state’s fifth-largest city.
The indoor water park was conceived by the ownership of the Mall of America, an affiliate of Triple Five Worldwide. The Bloomington park is meant to be a destination entertainment venue to bring traffic to the adjacent mall, opened 27 years ago.
The problem is that the water park — which would cost about $250 million just for construction — does not seem viable with private-market money. It could work financially only if a nonprofit owned it and financed the deal with tax-exempt bonds, eliminating the need to distribute any cash to owners or to pay higher, taxable interest rates on borrowed money.
Going that route means, and depending how you want to count them, there are at least seven parties involved in the project. And the one at the center of the whole deal is, under the tax code, known as a charitable organization.
Hicks flashed a slide up this week before a joint meeting of Bloomington’s Port Authority and City Council with a chart of all the parties. The public finance lawyer who founded Provident 20 years ago had arrows connecting them for either the money or the contract authority that will flow between them.
A savvier journalist would have simply snapped a photo with an iPhone rather than try to write it all down accurately, because Hicks moved on in a few minutes.
As currently envisioned, the land under this project would still be owned as an affiliate of the Mall of America Co., leased to the city of Bloomington. The city would turn around and sublease it to something called Provident Group Old Met Properties Inc., a “special purpose entity” created by Provident and cleverly named for the Metropolitan Stadium that once stood at the site.
Provident would borrow the money it needs to build the park from a “conduit issuer” of bonds, meaning the money would come from investors who buy the bond deal, through a public agency that issued the bonds.
One of the baffling things about the meeting earlier this week: how the financial adviser to Bloomington referred to the decision to be made down the road on who the bond issuer will be.
She did not explain that it won’t be a call on whether it will be the Port Authority or city of Bloomington — what you might expect. That is because everybody there already knew it might be something like the Arizona Industrial Development Authority or the Public Finance Authority of Wisconsin.
Why would a Wisconsin agency issue tax-exempt bonds to finance an entertainment project in Minnesota owned by a special-purpose affiliate of a Louisiana nonprofit? Well, because that agency was set up to facilitate schemes like this and serves no other purpose, in Wisconsin or anywhere else. And it would happily do this deal if the fees are right.
As we now have found out thanks to this Bloomington project, if you need a nonprofit to own what sure looks like a private entertainment business that can’t be financed in the private capital markets, you can simply rent one.
If you need a public agency to issue the bonds that will finance the deal, one of those can be rented, too.
Provident founder Hicks stressed this week that his nonprofit is a cut above competitors in this odd little niche.
He is not willing to simply rent out Provident’s tax-exempt status, he explained, and instead plans to have Provident’s affiliate own the Bloomington project for the long haul.
When the meeting went to questions and answers, Hicks got tossed a pitch so soft they may as well have been playing T-ball. He was asked, once again, to explain why a nonprofit is involved in what the mayor called a “commercial recreation facility.”
Hicks responded that Bloomington seemed to really want this water park and it would have been a genuine burden on the city — and on its borrowing capacity and credit rating.
“But for the legal action you have taken, we would not be able to do this project,” Hicks continued. “We could not have come in and just financed it ourselves. We have to have that connection to you, and the fact that you want it, you could do it if you wanted to, if you want to put the debt on your books. This is a more efficient way. … You still get the benefits of the asset without some of the detrimental effects that it could possibly have if it’s not a success.”
It is important to note that among the parties not taking any financial risk on this deal is Provident, although Hicks alluded to reputation risk if bondholders took a loss. Even the bondholders in this deal would not assume the full risk of lending money to a speculative venture, due to additional sales and use taxes at the Mall of America that would kick in to cover a shortfall in cash flow.
This brief meeting was all smiles, and my desire to ask a quick follow-up question of some of the principals faded by the end. That is because the compelling question here is one you would want to put to everybody in that room, from the mayor and City Council on down to city and Port Authority staff, financial advisers and even the few Bloomington taxpayers on hand.
Is everybody really OK with all this?