Target Center

BACKGROUND

Before the 1988 groundbreaking on Target Center, the City of Minneapolis issued bonds to pay for the preparation of the construction site with the understanding that the owners of the Minnesota Timberwolves basketball team would pay for the building. This plan enabled the State of Minnesota to secure a National Basketball Association (NBA) franchise. The Minnesota Timberwolves made their debut in the Metrodome in 1989, and Target Center was completed as the team’s permanent home the following year.

Although the Timberwolves were financially successful, Target Center soon began experiencing losses. The owners sold the team in 1994, but retained ownership of Target Center. They and the Timberwolves then approached the City and State for help.

HELP FROM THE CITY AND STATE

Legislation was passed in 1994 aimed at preventing the Timberwolves from leaving the State. The measure authorized the Metropolitan Council to sell bonds to purchase the land and refinance Target Center. However, a ruling by the U.S. Internal Revenue Service prevented the council from selling those bonds, making this deal unworkable.

Because of the Metropolitan Council’s difficulties, the City stepped in and purchased Target Center and the accompanying health club from the team’s original owners. The NBA franchise stayed in Minnesota as a result, preserving this revenue stream and the team’s contributions to the State.

Also in the 1994 legislation, the State agreed to contribute $750,000 a year to pay debt service on Target Center bonds. That funding was essential for the City to purchase the arena and meet its obligations. Right now, this arrangement has the City of Minneapolis paying approximately 88 percent of the Target Center debt service and the State of Minnesota picking up the remaining 12 percent.

TARGET CENTER OPERATIONS

Since 1990 Target Center has been operated and marketed by a succession of private managers who receive a portion of revenues.

Until 2000, Target Center’s manager achieved profitable results. Starting in 2001, profits declined due to competition from other venues, especially Xcel Energy Center in Saint Paul. By 2006, the manager was losing so much money, about $2 million annually, that the City was required to find a new manager and assume a portion of the operating losses.

Under the new manager, Target Center has become a more competitive venue for live entertainment. The City, however, has been required to find up to $1.8 million per year in operating expenses not covered by revenues received by the manager.

A REVENUE GENERATOR

While the State paid $750,000 of Target Center’s debt service in 2007, it received about $2.4 million in sales taxes from Target Center.

Target Center is expected to generate $1 million in entertainment taxes in 2008. That money and the other revenues generated by Target Center, including the base property tax and parking revenues, are dedicated to paying Target Center’s debt service. If this dedication didn’t exist, Minneapolis could use these funds (minus restricted tax increment revenue) for basic services – police officers, firefighters and street maintenance – or for other Target Center obligations that are currently unfunded, including projected increased capital needs of up to $2.5 million annually. Tax increment revenue cannot be used for basic services.

FINANCING

The City of Minneapolis purchased Target Center with $67.5 million of tax-exempt, 30-year general obligation tax increment bonds and $12.6 million in 30-year private-sector subordinated revenue bonds.

The City pays $6.25 million in debt service and capital costs on Target Center annually, with final payment due in 2024. The debt service portion, on average, costs $5.5 million and capital maintenance is approximately $750,000. Additionally, the City has provided $14 million in capital funds since 2003 for seating, a scoreboard, repairs to the roof, and other building needs. Under the operating subsidy and incentive arrangements with the arena’s current operator, additional City costs relating to the arena’s operation and management will average $1.9 million per year.

During the 2008 Legislative session, the City received the authority to re-establish its pre-1979 "Common Project" tax increment districts into a new district. This reorganization allows the City to use a portion of the tax increment revenue from this new district to pay debt on the Target Center.

Paying Target Center’s debt

3% entertainment tax on tickets

$1 million

Target Center’s City property taxes and tax increment financing

$1 million

Other tax increment financing from the Common Project

$2 million

City parking ramp revenue

$2 million

State’s Amateur Sports Commission

$750,000

TOTAL

$6.75 million

Target Center’s annual debt is $6.25 million. The remaining $500,000 from these payment sources is required to be deposited into a capital improvement fund, called the Target Center Capital Account. In 2011 this amount will increase to $750,000.

TARGET CENTER MAINTENANCE

As owners of Target Center, the City of Minneapolis has a responsibility to make sure the facility is properly maintained. Moreover, the City is contractually obligated to do so. In its agreement with the Timberwolves, the City must maintain the venue as a first class sports and entertainment facility.

The Target Center Capital Account was established to make these projects possible. It funds improvement projects to the center that are jointly agreed to by the building manager and the City. Money in this fund comes from tax increment revenue, and can only be used for Target Center improvements.

Acoustic modifications

In 2008, approximately $926,000 from the Target Center Capital Account went toward improving the center’s acoustics. This has made Target Center an even more attractive concert venue.

New roofs

The 30 different roofs of Target Center are almost at the end of their 20-year life spans. The City and building manager decided to use $5.3 million from the Target Center Capital Account to replace them all. This work includes replacing the building’s main roof with a green roof.

A green roof has advantages over a conventional roof:

MORE INFORMATION

City of Minneapolis Finance Department
City Hall, 350 S. 5th St.,
Minneapolis, MN 55415
(612) 673-2918

Last updated Feb. 7, 2012