Lawsuit challenges Minneapolis financing of Downtown East project

A lawsuit filed Wednesday challenges a key financing mechanism for the proposed $400 million Downtown East mixed-use real estate development in Minneapolis and asks that its approval be delayed.

The suit was filed by two previous mayoral candidates in Minneapolis and a former City Council president and names the city, the Minnesota Sports Facilities Authority, which is building the new Minnesota Vikings stadium, and Ryan Cos., developer of the Downtown East project.

The proposed development would cover five blocks in the shadow of the new $1 billion stadium and features two office towers, up to 400 apartments, retail shops, a public park and a parking ramp for office workers and stadium-goers. The land is currently owned by the Star Tribune.

While $350 million of the project's costs will be privately funded, the city has proposed issuing up to $65 million in bonds to help pay for the ramp and the park.

The City Council is expected to sign off on the Downtown East plan, which includes the bond issue, on Friday. If it's delayed, the decision could roll over to 2014, where it would go before a 13-member council with seven new members.

The financing plan, which involves the city using its port authority powers to create an industrial district, will provide $32.6 million for the ramp and about $20 million for the park, plus money for ancillary costs.

However, the lawsuit filed in Hennepin County District Court contends that creating such a district requires the area to be declared a "marginal property," which is not the case for the Downtown East land.

The complaint also says legislation establishing funding for the stadium limits the city's share of the cost to the $150 million, meaning the $65 million sought in bonds is not valid. The suit says the bond issue "violates the limitation on city funding for stadium improvements."

The suit also alleges that the City Council has no authority to establish or maintain a park under the city charter, saying that's the purview of the Minneapolis Park and Recreation Board.

The plaintiffs are software executive Stephanie Woodruff and two former Minneapolis City Council presidents, Dan Cohen and Anoka County prosecutor Paul Ostrow. Woodruff and Cohen ran for mayor this year, and Ostrow chaired Woodruff's campaign.

The suit calls for a temporary injunction barring the city from final council action on the project "until this matter can be determined on the merits." An emergency court hearing is set for 9:30 a.m. Thursday.

Mayor R.T. Rybak's office rebuffed allegations from Woodruff earlier this week about limits on city funding for the stadium. Rybak spokesman John Stiles said the Downtown East financing deal is permitted because the city is financing the ramp, with a requisite payback, and under specific language in a section of the stadium legislation.

Rick Collins, vice president of development for Ryan and the point-person on the Downtown East project, declined to comment on the lawsuit late Wednesday. The Sports Facilities Authority declined to comment.

Janet Moore • janet.moore@startribune.com