Nail down numbers on Rupp; Taxpayers must know they won't be left holding bag on reinvention

February 16, 2014 

Two things are evident about Mayor Jim Gray's plan to reinvent the monotone box that houses Rupp Arena and the Lexington Convention Center:

1) It could transform this area in downtown from a dead zone most days into a destination that enriches economically and culturally, while providing a glitzy, technologically advanced, more comfortable, marketable and accessible home for the University of Kentucky Men's Wildcats.

2) Construction cannot begin until a plan to pay for it — built on real numbers and sound assumptions — has been made public and fully vetted.

The downgrade last fall of $339 million in bonds used to fund the KFC Yum! Center in Louisville was a stern warning to sharpen pencils. With Rupp's $310 million price tag — by comparison the current annual city budget is $289.3 million — wishful financial thinking will serve no one.

Yet, Rupp is not Yum.

In Louisville there were early miscalculations, including anticipating that tax increment financing (TIF) revenue would account for a third of the annual debt service. TIF districts are areas where substantial investment is paid for in part by recapturing some of the increased state tax revenue generated by the improvements. The YUM TIF has fallen far short of estimates, although revenues are improving.

Another issue is that, simply put, the University of Louisville got a sweetheart deal.

In the dry language of a bond analyst's downgrade note, the revenue-sharing lease with U of L, "limits the (arena) authority's profit upside from the successful anchor tenant." The report notes that "the authority gets only 10 percent of gross ticket sales for men's basketball games and five percent for women's."

In the next few months, the mayor and council will, as they hash out the city's budget for the coming year, define how much, if any, money the city will put into the project. It's reasonable for Lexington taxpayers to contribute but only after it's clear they won't be stuck if other sources fall short.

So, here are some things that must happen soon:

■ The General Assembly must agree with Gov. Steve Beshear's proposal to include $65 million for the project in the state budget. However, that money should not be released until all of the financing is in place.

■ The city must determine the Rupp TIF district and projections for what it will contribute. The recent announcement that national retailer Urban Outfitters will move into the neighborhood, lured in part by the planned work at Rupp, is a good sign of increased economic activity in the area. Still, TIF revenues are a wild card and, as Gray has indicated, conservative estimates are in order.

■ The project's task force must establish realistic projections on revenue from Rupp, including non-UK sports events and on prospects for the new, larger convention center. It's also time to nail down how much money UK fans will ante up, and likely revenues from naming rights and sales of other concessions.

UK deputy director of athletics DeWayne Peevey, the school's representative at a media event Monday to unveil design plans for the project, said UK views the arrangement with the new Rupp not so much as a landlord/tenant deal but as more of "a partnership."

Fans and taxpayers need to know more about that partnership, like how much UK will put into this deal.

The dynamics are quite different from those in Louisville when YUM was planned. UK plays in Rupp, close to campus, and President Eli Capilouto has made it clear he won't build a new arena. The Cardinals had to be talked out of a new campus arena and lured downtown.

No one questions Capilouto's focus on his campus and UK's central educational mission. And few today would drop an arena in the heart of a downtown.

But the reality is that, whether it's good urban planning or educationally beneficial, UK men's basketball is very important to the school, community and state, and it is and will be played in Rupp Arena in downtown Lexington.

It's time to nail down the numbers.

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