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The Mall of America is one step closer to becoming the home of a supersized water park decades in the making after its owners found a way to borrow the money they need to build it.

But economic conditions are creating new challenges for the project, most recently estimated at $430 million, and the clock is ticking. A state provision temporarily giving cities more flexibility in how they spend tax-increment financing (TIF) dollars — a key part of plans to fund the water park — is set to expire at the end of the year.

"Our hope is to place the financing yet this summer and start construction this fall, however the current financing and construction market challenges may delay this project until conditions improve," the Mall of America said in a statement.

The St. Paul Port Authority could issue up to $445 million in taxable conduit revenue bonds, which will be sold only to qualified buyers who could earn interest up to 12%.

Investors — not the city of St. Paul or Bloomington taxpayers — will take on the risk associated with the bonds, which will be backed by the water park's future revenue and assets. If the water park fails to turn a profit, bondholders will lose out.

Interim Port Authority President Todd Hurley said the project is likely the authority's largest bond issuance to date. The agency agreed to serve as the conduit because the project aligns with its economic development goals for the region, he said.

The 360,000-square-foot attraction, dubbed Mystery Cove Water Park, would feature waterslides, a 1,400-foot lazy river and a wave pool with an indoor beach front. A 1,600-stall parking ramp would be built on the site, which is owned by Triple Five, the company that owns the Mall of America. There would also be space for a hotel and future commercial expansion.

Though Bloomington and its own Port Authority have the power to issue bonds, the city and agency wanted to maintain a more traditional role with a focus on the project's tax-increment financing, said Schane Rudlang, administrator of Bloomington's Port Authority. TIF is a tool cities and other public authorities use to pay for development in the public interest by capturing the incremental property tax increases those developments create.

Triple Five has been interested in building the Mall of America water park since the 1980s. An economic impact study commissioned in 2018 estimated the project would attract more than 900,000 visitors and generate $15 million in tax revenue each year.

Around that time, Triple Five worked with the Bloomington Port Authority and City Council to devise a unique and complex nonprofit model to finance, build and own the water park. But the COVID-19 pandemic put the project on hold.

A new financing path opened up last year, when the state Legislature gave cities special permission to use TIF to spur private development and create jobs, a provision aimed at boosting economic recovery in the wake of the pandemic. According to the law, the tax increments must be obligated by the end of this year and used for projects that will start construction before 2025.

Bloomington and its Port Authority voted in March to create a TIF district that will generate $105 million for water park development, most of which will go toward roads, infrastructure and parking.

Uncertainty remains because development costs keep growing. Between inflation, labor and supply shortages, and rising interest rates, the estimated costs that the Mall of America expects to shoulder have grown to $325 million — up from a roughly $260 million pre-pandemic price tag.

Lisa Washburn, a Municipal Market Analytics managing director who leads the Massachusetts-based firm's consulting division, pointed out that pre-pandemic financing plans for the water park guaranteed the debt with a pledge to raise sales taxes at the Mall of America if park revenue fell short. That plan was scuttled "as the project's costs and risks are rising," she said.

"In the prior iteration of the transaction, the par amount of the bonds was lower, the issue was going to be tax-exempt, the rate environment was more favorable, COVID hadn't emerged, inflation wasn't a meaningful factor and the risk of recession wasn't escalating," she said. "I wonder — and am skeptical of — how this all pencils out in the feasibility report."

A statement from the Mall of America said the new financing strategy allows developers to avoid restrictions associated with tax-exempt ownership and financing. Triple Five and underwriting firm Barclays believe "the municipal bond market is deeper than the private bond market, which would result in lower borrowing costs," the statement said.

It added that project leaders have no plans to lobby the Legislature to change its deadline and believe "there is still adequate time to work through the challenges."

Rudlang of the Bloomington Port Authority was similarly hopeful.

"We're working hard on it," he said.