$26.5 million Vadnais Sports Center is a costly boondoggle

Vadnais Sports Center — beset by problems and just put on the market at a fraction of its $26.5 million cost — had every chance to succeed instead of becoming a costly boondoggle, current and former mayors of Vadnais Heights say.

Mayor Marc Johannsen, as a former City Council member, and former Mayor Susan Banovetz were deeply involved in the sports center's planning and construction before its descent into financial trouble. The city walked away from it last year, leaving the bondholders who paid for it at risk of losing much of their investment.

"I know this is in litigation, but I will just say this: Some people were determined to see it fail from the time it was just a mere idea," said Banovetz, who as mayor from 1997 to 2011 led several major building projects in the city.

"There were [city staffers] working actively behind the scenes who put a lot of energy into seeing this fail who should have been using that energy to see it succeed," she said.

Why those staff members would undermine the project is unclear, she added, but it's clear to her they had personal agendas. "This could have been a success," she said.

Based on the numbers, it should have worked, said Johannsen, who took over as mayor in 2011 and has been on the City Council since 1995. "We took a lot of time and effort and spent hundreds of hours vetting the numbers and going over them with our consultants. … Nobody told us, 'Don't do this deal,' " he said.

At least one expert, however, had warned city officials that the attendance and revenue numbers were overly optimistic — a prediction that proved prescient.

The sports center with its distinctive white-bubble dome — the second-tallest in the Twin Cities — was to become Vadnais Heights' signature piece, a destination for thousands and another engine for economic growth.

With bondholders funding it under a financial arrangement unlike that used for any other community sports arena in the state, it wasn't supposed to cost the city's taxpayers a dime.

Johannsen said he is convinced the three-year-old sports center can still be a success in private hands. User statistics have improved this year, he added: "I think the sports center will work itself out."

Johannsen said the key revenue and attendance numbers that the city relied upon came from Community Facilities Partners and the firm later hired to manage the sports center, Sports Facility Development and Management Group, run by former Vadnais Heights City Council Member Mark Bigelbach. Bigelbach is suing the city over his subsequent dismissal.

At the request of city officials, Mark Erickson, an analyst with the National Sports Center Foundation, did what he called a "cursory review" and warned them in late 2009 that the financial data on which the plans were based were "unsupported and incomplete," and that revenues were significantly overstated while expenses were understated.

Erickson said no other Minnesota city has financed their local arenas the way Vadnais Heights did.

It was also unusual in that no down payment was made by the city, he said.

The foundation operates the National Sports Center in Blaine, the world's largest amateur sports complex, which is self-supporting and recognized for its expertise in arena planning.

It was not involved in the Vadnais Sports Center planning, which it could have done at no cost through the Minnesota Amateur Sports Commission.

When the Vadnais Heights City Council began talking about building a hockey arena and athletic center five years ago, the northern Ramsey County suburb of 12,000 was on a roll in its efforts to transform itself from a sleepy rural village to bustling suburb.

A City Center plan sparked growth along County Road E, where a new six-lane bridge over Interstate 35E brought traffic.

A new city hall followed, replacing a Depression-era building and paid for with savings, and an events center called Vadnais Heights Commons opened in 2011.

When discussions turned to prospects for a hockey arena and sports center, nonprofit Deephaven-based Community Facilities Partners offered an almost irresistible financial plan: The city could issue bonds to pay for the sports center and turn back ownership of it to the nonprofit, with the city acting as "master leaseholder."

Revenue from the sports center, projected at $2.3 million annually, would cover the cost of debt service.

That estimate was based on 1.3 million spectators and participants using the sports center each year. But both figures proved wildly optimistic, and audits would later show questionable monitoring and management.

The fallout will likely be felt by bondholders who probably will recoup little if anything on their initial $26.5 million investment.

The arena, still owned by Community Facilities Partners, is on the market with an asking price of $13 million.

But it could go for as little as $8 million, said Ray Giannini, first vice president of investments for Marcus & Millichap Real Estate Investment Services, the firm marketing the arena.

Vadnais Heights has spent $5.5 million — equivalent to its entire annual budget — to help pay the bills before defaulting on the bonds.

The city's bond credit rating plummeted to near junk status, and a prominent conservative website put Vadnais Heights on its "worry list" of cities in danger of following Detroit's lead toward bankruptcy.

Kevin Watson, who has been Vadnais Heights' city manager for five months, the situation wasn't quite that dire.

"Being on that list is unfortunate and scares people unnecessarily," he said. "The sports center was a project that did not come to fruition as planned. The city was in legal bounds to opt out of the agreement, and that is what they chose to do."

Though Vadnais Heights will not likely recoup any of the money it put into the sports center, Watson described city finances as healthy and said it was working to rebuild its credit rating and community trust. The city is current on two other bond projects and this year paid off bonds for the County Road E bridge.

Municipal bonds are usually considered the safest form of investment, because the debt sold by a city is repaid over time with the reliable revenue of taxpayer dollars. Returns are more modest, but so is the risk.

But the arrangement used to pay for the sports center was a "conduit" type of municipal bond financing, by which a city issues debt on behalf of a nonprofit. Instead of the debt being backed by tax funds, it's backed by expected revenue from the project.

State Auditor Rebecca Otto, who was involved in previous reviews of the sports center's operations, could not comment on whether her office is looking at the city's books.

"The city has taken action," Otto said. "It will be up to the voters" to decide if they approve the course of action.

Watson said that Vadnais Heights has no plans for major bonding projects in the near future. Any that do come along will be fully vetted, he said.

"We will keep moving forward and keep providing basic services," he said. "That is what our citizens expect us to do."

Jim Anderson • 651-925-5039 Tim Harlow • 612-673-7768