CHICAGO — Rochester, Minn.-based Mayo Clinic hopes to land $500 million of state bonding help over the next two decades to support a proposed $5 billion capital improvement and economic development plan that aims to both improve its own facilities and remake its home city.
The initiative dubbed Destination Medical Center is designed to enhance the prestigious clinic’s draw internationally as a health care destination over the long-term. The plan includes Mayo’s previously announced investment of $3.5 billion in its capital facilities on the Rochester campus and other facilities in the coming years. In addition, the plan relies on $2.1 billion in private investment and $585 million in state and local aid to support public infrastructure improvements for the city makeover.
“Mayo Clinic not only intends to protect its current status as one of the world’s premier medical institutions but to significantly expand our highly-effective practice model and medical assets to be clearly recognized as a global destination medical center for decades to come,” the clinic’s chief executive officer John Noseworthy said in a statement Wednesday. Clinic officials unveiled the plan at a news conference alongside Gov. Mark Dayton.
The plan envisions improved lodging, hospitality, entertainment, retail venues, and housing stock for both patients and their families and to improve the clinic’s ability to help convince top-notch physicians and other employees to relocate there.
The public funding would help draw public investment by covering the costs of some of the parking, transportation, utility, environmental remediation, bridge, skyway, and streetscape projects.
The clinic said it has been working with public finance and development experts to craft a finance plan and is turning to the state given Rochester’s limited resources. Under its proposal, the state would be asked to issue up to $500 million of appropriation-backed bonds on an as-needed basis to support projects. A public body would be established in state statute to recommend eligible projects. The remaining $85 million would be raised through a mix of city tax revenues, tax-increment financing, and local revenue-backed borrowing.
The state borrowing would be repaid by employing a “value-capture” model that relies on using a small percentage of the new state tax revenues generated by the Mayo Clinic and DMC expansion in Rochester as the bond revenue stream, the clinic’s statement read. Projects would be approved only if the anticipated revenues were available to repay the borrowing. The financing will be submitted to lawmakers this year.
Officials said they are also eyeing expansion projects outside Minnesota and hinted that their commitment to their Rochester headquarters is conditioned on the public and private support “needed to support an expansion of this scale,” Noseworthy said.
In addition to improving its competitive edge, the clinic is also promoting the economics of such an investment. It could create more than 25,000 jobs, generate more than $2.5 billion in additional state tax revenues, and $300 million in local tax revenue over 20 years, clinic officials said.
Ahead of a bond sale last summer, Moody’s Investors Service affirmed the clinic’s Aa2 rating and Standard & Poor’s affirmed its equivalent AA rating. The hospital has $2.4 billion of rated debt. Both agencies assign a stable outlook.
The clinic said last year it intended to issue about $250 million in additional debt in the coming years to support its $3.5 billion capital program. Projects include the expansion of the emergency department at Saint Mary’s Hospital in Rochester and the clinic is building two proton therapy centers, which use protons generated through an acceleration process to target cancer cells. The system also has major campuses in Florida and Arizona and operates a total of 22 hospitals in Minnesota, Iowa, Wisconsin, Florida, Georgia, and Arizona.
Mayo’s rating reflects its “strong international reputation for patient care and research; large scale of the organization with revenue in excess of $8 billion; very strong financial performance and favorable payor mix across three distinct markets,” Moody’s said.
The system’s challenges include a large research and education mission that required $256 million of system support in fiscal 2011 and a 28% exposure to private equity as part of its long-term asset fund.