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A public development authority in Arizona has been chosen to play a key role in financing a massive water park beside the Mall of America in Bloomington.

City officials said this week that the Arizona Industrial Development Authority (AZIDA) had been selected to issue tax-exempt bonds for the project, possibly worth more than $300 million. Typically such bonds are issued by the city or county where the project is taking place, so the decision to bring in an Arizona agency adds another layer of complexity to an already unusual deal.

The proposed water park would be one of the largest in the country if constructed. The Mall of America proposed the facility but believes it would not generate enough money to cover private financing costs.

Instead, the city is developing a plan to pay for the project with tax-free debt while shielding the city's credit rating if the park fails to generate enough money. It has partnered with a Louisiana-based nonprofit organization, Provident Resources Group, which would borrow for and later own the water park under its stated charitable mission of "lessening the burdens of government."

That debt would be backed by a city pledge to hike sales taxes at the Mall of America if the water park isn't profitable enough — an option authorized by the Legislature in 2008. The city would also spend more than $50 million to build a parking ramp and skyway.

The water park would pay market-rate rent to Mall of America ownership, possibly more than $2 million a year, because it is being built on land owned by the mall.

Provident chose AZIDA to issue the debt after consulting with Bloomington, said Bloomington Port Authority Administrator Schane Rudlang. AZIDA is among just a handful of so-called "conduit issuers" around the country that do deals with no connection to their home state — for a fee.

Wisconsin's Public Finance Authority has become the most high-profile example of the practice. It issued the bonds for the Mall of America's owner, Triple Five Group, to build the massive American Dream project in New Jersey, which opened Friday.

Such deals often arise because in-state bond issuers have concerns about a project, said Barry Fick, executive director of the Minnesota Higher Education Facilities Authority. The authority issues tax-exempt bonds to private colleges and universities, but only within Minnesota.

Fick said nonprofit organizations like Provident typically make each project into its own limited liability company.

"As long as nothing goes wrong, there's not a problem," Fick said. "If something goes wrong, it's hard to find somebody who's willing to step up and remedy it."

Rudlang said the financing has been structured in such a complex way primarily to protect the city's credit rating.

"To the extent there are things that we can do even to reduce the perception that we are the issuer — that we are somehow responsible for the debt — those are steps that we're willing to take," he said.

On Tuesday, city leaders will review an agreement with Provident outlining the structure of a new Minnesota nonprofit organization that would be created to borrow for and own the water park.

A city timeline for the project anticipates construction materials possibly being ordered in March 2020, and the water park opening in summer 2022.

Tax-exempt bonds are a federal subsidy primarily intended to build infrastructure for the public good, said Lisa Washburn, chief credit officer of Municipal Market Analytics, which researches the municipal bond market. There has also been increased investor appetite in recent years for riskier municipal bond offerings.

"To the extent that the federal government is subsidizing more speculative and less public-oriented projects … it challenges the intended use of the exemption," she said.

Eric Roper • 612-673-1732 Twitter: @StribRoper