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Mayo Clinic unveils $6B Rochester initiative, vies for public money

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Mayo Clinic executives joined Gov. Mark Dayton and other Rochester leaders at the state Capitol Wednesday afternoon to announce a $6 billion, 20-year economic development initiative aimed at ensuring that the Rochester-based hospital remains one of the world's top health care destinations, the Star Tribune reports. The project would require the Legislature to create a special taxing district to capture a portion of the tax dollars generated by Mayo's capital improvements.

Under the Destination Medical Center proposal, Mayo Clinic would invest $3.5 billion to expand its Rochester campus over the next two decades, the Post Bulletin reports. Clinic officials say there would be another $2 billion in private investment.

The clinic is also seeking $585 million from state lawmakers to cover public infrastructure costs associated with the ambitious plan, MPR reports.

"This is necessary because Mayo's growth has to be supported by infrastructure and community growth to support that, and if that doesn't happen, then we won't do it here," Mayo Clinic President and CEO Dr. John Noseworthy told the Rochester newspaper. "That's a reality. We are not going to sink this kind of money into a 20-year growth plan if we don't have the community support and financing to make it happen."

Speaker Paul Thissen released the following statement regarding the initiative.

“The Mayo Clinic is a world-renowned leader in health and we are proud that Minnesota is their home.

As the largest private employer in the state, their economic impact on jobs and in our communities cannot be overstated. It is vital we continue our state’s strong partnership with the Mayo Clinic. We thank Mayo Clinic for bringing this proposal forward and we look forward to working with them to identify ways we can make sure Mayo Clinic remains and grows as a world-class medical and research facility.

Legislators from the region have begun engaging with Mayo Clinic and local officials to better understand Mayo’s needs and to identify ways the state can support their goals. It is our hope we can move forward in a way that benefits the Rochester region and state.”

Senate Majority Leader Tom Bakk released the following statement regarding the initiative.

“Mayo is recognized around the globe as a leader in healthcare and we’re proud that they call Minnesota home. They are already our state’s largest private employer and today the Mayo Clinic announced plans to invest billions of private dollars to stay competitive, grow jobs and spur economic development right here in Minnesota. The state needs to be a partner in ensuring that Mayo and the Rochester region achieves that shared goal.

This is clearly is a big project that will require bi-partisan participation in the legislature and significant involvement from city and county partners from the start. Working together with Mayo, I’m optimistic that this group will be able to arrive at a solution to position the Mayo Clinic among the top destination medical centers in the world for decades to come.”

Read the news release below:

ROCHESTER, Minn. — Mayo Clinic today announced Destination Medical Center (DMC), a $5 billion economic development initiative to secure Minnesota's status as a global medical destination center now and in the future. The goal of DMC is to ensure that Minnesota and Mayo Clinic are destinations for medical care in the coming decades. This initiative is the culmination of a three-year study by Mayo Clinic to chart its future business strategy in an increasingly complex, competitive and global business environment.

The DMC public and private investment is estimated to include approximately $3.5 billion in new Mayo-financed capital investments on its Rochester campus over the next 20 years, combined with an estimated $2.1 billion in additional leveraged private investment. The multiyear Mayo Clinic DMC investment, combined with additional private investments required to support this global destination vision, is projected to create 35,000 to 45,000 new jobs in Rochester and Minnesota and over $3 billion in new tax revenues in Minnesota. This represents the largest economic development initiative in Minnesota and one of the largest in the United States.

"This bold economic development initiative is driven on the proof of growth in the private sector and not the promise of growth," says John Noseworthy, M.D., Mayo Clinic president and CEO. "Ten years from now, there will emerge just a few medical centers with the reputation for health care excellence and patient-focused outcomes that will attract patients from all over the world to their flagship medical center. 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."

As Minnesota's largest private employer with more than 32,000 employees in the state, Mayo Clinic has long been synonymous with the city, Rochester, where the clinic is located and headquartered. But other U.S. cities and foreign countries often encourage Mayo Clinic to consider expansions outside of Minnesota. "Various medical centers are evaluating major cities in the United States, Europe, Asia and the Middle East as possible locations for significant expansion," says Dr. Noseworthy.

"While Mayo Clinic is also evaluating plans for additional expansion outside Minnesota in future years, we believe Rochester can and should remain Mayo's global headquarters and a premier destination for medical care well into the future, assuming we can attract the additional private business investments and finance the necessary public infrastructure needed to support an expansion of this scale," he says.

In addition to the Mayo-financed and non-Mayo private investments, it is anticipated that a total of $585 million in public infrastructure costs will be required to support the DMC expansion over the 20-year investment timeline, bringing the total DMC investment in Minnesota to over $5 billion. Current projected benefits to Minnesota from Mayo Clinic and related DMC expansion include (over 20 years):

  • Total economic impact to Minnesota exceeding $45 billion, including $30 billion of direct spending.
  • 35,000 to 45,000 new jobs in Minnesota, of which 25,000 to 30,000 would be direct to expansion in southeast Minnesota.
  • 1,800–2,200 construction jobs per year. Most will be union/trades.
  • $2.5–$3 billion in additional tax revenues to the state of Minnesota (personal income, sales, other state taxes) over the 20-year period;
  • An additional $300 million in new local and other tax revenues.

Major elements of the proposed DMC initiative fall into three categories:

Mayo Facilities and Services Expansion. In 2012, Mayo Clinic announced that it intended to invest nearly $3.5 billion in capital improvements throughout its facilities in Minnesota and other states over the next 20 years. Mayo will continue to invest in its own infrastructure and improvements to increase the quality of care delivered to patients. Mayo needs support from the state and local jurisdictions to improve public infrastructure that supports Rochester and Minnesota as a global medical destination. Additionally in 2012, Mayo Clinic along with the city of Rochester and Rochester Area Economic Development, Inc. (RAEDI) announced an accelerator project that will support entrepreneurs who have licensed Mayo's innovative technologies to advance medicine and make these technologies available for patient care. This space will enable bio-business companies to obtain short-term leases quickly and affordably in a space dedicated to small startups. Space provides for collaboration between startups and accessibility to ancillary infrastructure services (i.e., venture capital).

Private Business Expansion. Market research revealed significant gaps in patient/visitor satisfaction between their experiences on the Mayo campus (which are rated very high) vs. the non-Mayo time they spend in Rochester during their visits. To realize the DMC vision, it will be necessary to meet visitor expectations with respect to new lodging and hospitality venues, entertainment, retail and visitor attractions.

  • This "satisfaction gap" is also pronounced among Mayo Clinic employees and other residents of Rochester, who are demanding better housing options in addition to quality of life enhancements in the community. This issue has emerged as an impediment when trying to recruit new physicians and other employees to relocate to Rochester.

Public Infrastructure. To support $5.5 billion in private investment and hundreds of thousands of new visitors to Rochester each year, a significant investment in public infrastructure will be required for public parking, transportation and transit; utilities, land assembly and buy-down, environmental remediation, streetscape improvements and plazas, skyways, bridges, public meeting spaces, etc.

Mayo Clinic has been working with public finance and development experts and various public officials to craft a workable plan to finance the public infrastructure costs. While Mayo Clinic will privately finance all of its facilities expansion, it became clear that the city of Rochester does not have the capacity to finance public costs exceeding $500 million, nor will a private developer pay for public infrastructure. A DMC working group has developed an innovative public finance plan that involves the following elements:

  • A portion of the proposed $585 million in public costs will be financed locally by the city of Rochester using city tax revenues and financing tools such as possible revenue bonding, tax abatement and TIF (Tax Increment Financing). In addition, Rochester voters last November approved an extension of the local sales tax that included $20 million as an additional city contribution to support the DMC expansion.
  • A public body will be created in state statute that is governed by state and local appointees who will review multiyear public development plans in the DMC special services district in Rochester and recommend eligible public infrastructure projects to the state for DMC financing.
  • The state portion of DMC financing (approximately $500+ million) would be secured by a state appropriation bond that is drawn upon incrementally over the 20 years when eligible projects are needed and then submitted to the state for final approval.
  • The state DMC appropriation bonds 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.
  • Unlike almost all economic development projects that rely on "front-loading" of the entire public infrastructure costs, the DMC model would require smaller increments of public financing over a long period. As importantly, new projects would not be approved for financing unless and until the state Department of Revenue annually certifies that new state tax revenues generated by the DMC expansion have actually been paid to the state. In other words, the DMC financing proposal relies on "proof of new tax growth paid to the state" before additional projects are financed vs. banking on estimated tax growth that hopefully occurs in the future.

The DMC financing plan will be submitted to the 2013 Minnesota Legislature for consideration.

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