Rupp redesign project manager says project will likely need 'bridge funding' soon

bmusgrave@herald-leader.comMarch 15, 2014 

  • TRACKING THE MONEY

    A combination of state, city and local money has been used to pay for the design costs for the redesign of Rupp Arena and the convention center. Of the $5.5 million, $4.6 million had been spent as of Feb. 21.

    Here's a breakdown of spending:

    ■ Project director: $291,385.18 (This includes base salary of $200,000 a year plus benefits from Jan. 1, 2013, to Feb. 21.)

    ■ Legal: $87,664.92

    ■ Consulting services: $4,191,800, including:

    — Commonwealth Economics for Tax Increment Financing: $13,838.71

    — Downtown Development Authority/Lord, Aek & Sargent for urban planning, tax increment financing: $253,849.75

    — Consulting Services Inc. geotechnical survey: $42,700

    — Convention Sports Leisure for convention feasibility study and financial plan for the project: $280, 957

    — Cornett IMS Inc. for website, other public relations services: $100,000

    — Hunt Construction for pre-construction services: $83,125

    — NBBJ Architects: $2.78 million

    — PC Sports for project management: $624,952

    — Urban Collage for urban planning: $10,000

    — Miscellaneous costs: $38,157.93

    Source: The Rupp Arena, Arts and Entertainment District

The Rupp Arena, Arts and Entertainment District has spent $4.6 million of the $5.5 million set aside for designing the new Rupp Arena and convention center, according to documents obtained by the Herald-Leader.

The $5.5 million — a combination of state, city and tourism dollars — will be tapped out by July 1, said Frank Butler, the project manager for the redesign that includes expanding Rupp Arena and moving and expanding the existing convention center.

Butler said the $5.5 million was always expected to be exhausted by July 1. But the project will need additional money soon to move forward, Butler said.

"We will likely need some type of bridge funding," he said.

That highlights the importance of two potential funding sources pending in Frankfort: $65 million in the governor's budget and a proposed hotel tax increase.

A financial plan on how to pay for the $328 million project — $310 million for the design and construction costs and $18 million to pay off a previous convention center renovation — has not yet been released.

Of the $4.6 million already spent, about $2.7 million has been paid to NBBJ architects for the design. Nearly $90,000 has been spent on legal services, and $1.4 million has been paid to eight different consultants, including project managers, urban planners and web designers.

Butler said that a full financial plan will likely be announced in mid- to late April, after the General Assembly is scheduled to approve a two-year budget.

Originally slated to be announced in November, the financial plan has been pushed back for several months.

Butler said this week that the delay was due in part to delays in getting cost estimates. The financial plan has also been complicated because so many sources of funding are in play.

"We have three major partners in this project: the university, the city and the state," Butler said.

The University of Kentucky, Rupp's marquee tenant, has agreed to a 30-year lease, Butler told the Herald-Leader last week.

"We have an agreement in principle, but we are still working through the details," Butler said. "We are thinking the middle to the end of April."

The University of Kentucky currently has a 20-year lease that is set to expire at the end of 2017.

Jay Blanton, a spokesman for UK, confirmed this month that the university will sign a long-term lease. The university's commitment to the project had been in question. Now that UK is on board, the rest of the financial plan can move forward, Butler said.

Mayor Jim Gray has said that he will include the city's contribution in his budget but has declined to say what the contribution will be and what form it will take. His budget will be unveiled April 8. The Urban County Council typically approves the budget in June.

Another key part of the financing plan — the state's contribution — should be known by mid-April. But the future of that funding is precarious at best.

The Democratic-controlled House approved a more than $20.3 billion two-year budget Thursday that includes $65 million in state dollars for the project. But the measure must pass the Republican-controlled Senate. The General Assembly has until April 15 to pass a budget. If it doesn't, it will have to return for a special legislative session.

The legislature is also considering House Bill 544, which would give the city authority to raise the hotel and motel room tax an additional 2.5 percent from its current local room tax rate of 6 percent. The additional $3.5 million raised by the tax hike could be used to pay off a loan for the new construction. Rep. Jesse Crenshaw, a Democrat from Lexington, filed the bill.

Butler said that the additional hotel/motel tax is a must for the project to moved forward.

'It's an integral part of the financing," Butler said. But whether the bill, which gives the Urban County Council the authority to raise the tax, will pass a legislature resistant to tax increases is not known.

House Speaker Greg Stumbo, a Democrat from Prestonsburg, said he supports the measure.

"I don't view Rep. Crenshaw's proposal as a tax bill, since this revenue source is recognized as Urban County Government's," Stumbo said. "As a result, I don't mind taking the cap off."

Senate President Robert Stivers did not respond to requests for comment. Sen. Tom Buford, a Republican from Nicholasville whose district includes parts of Fayette County, said late Friday that the Senate has many concerns about the $65 million and the increase in the hotel/motel tax.

The Senate is struggling to find money to fund education. "I don't think it's going to put us in a very good light if we add a tax for a construction project that is not related to education," Buford said. "The hotel/motel tax is extremely concerning to the Senate."

In addition to state and local funding, Gray has said naming rights will also be part of the financing plan. But Rupp will always be part of the name of the arena. Fan contributions will also be part of the plan. Tax increment financing, which uses new taxes generated from the project to pay off loans, will also be used.

What's been spent so far

Of the $4.6 million, more than $75,000 was spent on a Feb. 10 news conference at the convention center to unveil the designs for the re-imagined Rupp Arena and convention center. That price tag included more than $30,000 for a slick video hyping the new designs, $30,000 for schematic drawings and more than $15,000 for sound and light production, according to documents obtained by the Herald-Leader through an Open Records Act request.

In addition to a $100,000 contract to Cornett IMS for a website and other public relations work, the group has spent more than $7,053 on newspaper, television and other advertisements touting the new Rupp design. Some of those advertising dollars were spent on media buys for a fan input survey that was conducted prior to the February unveiling of the new design, city officials said.

According to invoices, the group also paid $1,549 in January to rent a room at the Hyatt to hold a public hearing for fan input. The Hyatt is connected to the current convention center, which might have let the group use its space for free.

"There were a lot of problems with scheduling," Butler said. "We had to reschedule things a couple of different times because there is usually something always going on in those (convention center) rooms."

The group also spent nearly $500 for a specially designed stand for the architectural model of the new design. The model cost $25,000, according to NBBJ invoices.

Butler said advertising, sound and lighting and other costs related to the news conference came out of money the Lexington Convention and Visitors Bureau contributed toward the $5.5 million. The city gave $2.5 million, the state gave $2.5 million and $500,000 came from the Convention and Visitors Bureau and the Lexington Center Corp., which manages Rupp and the convention center.

Gray, the former CEO of Gray Construction, said the videos, the schematic designs and the architectural model have been used repeatedly since the designs were unveiled last month. They were necessary for the public to understand what the project entailed.

"We have stressed public input from the beginning," Gray said.

The locally produced Bullhorn video of the Rupp redesign has had more than 224,000 views, city officials said.

In addition to the $30,000, Bullhorn was paid an additional $1,500 because it could not shoot one day, according to invoices. NBBJ hired Bullhorn directly; the contract was not competitively bid.

The schematic renderings and the Bullhorn video were an additional expense to the NBBJ contract, according to invoices.

Paula Portz, president of PC Sports, the project manager who approves invoices for the project, said it's not unusual for projects such as Rupp to have videos.

"This is in the range for videos we've procured on other projects," Portz said. "Some even closer to $100,000."

The University of Kentucky Athletic Association spends similar amounts on news conferences when it has big announcements, said Susan Straub, a spokeswoman for the city. A news conference to announce new football head coach Mark Stoops topped $40,000, the Herald-Leader reported in December 2012.

The Rupp Arena, Arts and Entertainment District also did not ask for requests for proposals for one of the law firms on the project, Dinsmore and Shohl, according to documents.

Butler said the Dinsmore firm has represented the Lexington Center Corp. for years and understands the complexities of the project and the convention center business. If the group had bid for legal counsel, it would have cost the group additional money to bring new lawyers up to speed, Butler said.

"I didn't have to spend time orienting people, they already knew the project," Butler said.

In addition to Dinsmore, the Rupp district also hired the law firm of McBrayer, McGinnis, Leslie and Kirkland for legal work on tax increment financing. The group asked for requests for proposals — a bid process for professional services — for the tax increment financing legal work. McBrayer got the contract.

McBrayer lawyers charge the group about $330 an hour, according to invoices. Dinsmore lawyers charge between $530 and $200 an hour, according to the documents.

The group also paid PC Sports more than $624,952 to manage the design phase. In addition, Butler receives an annual base salary of $200,000 for project management.

PC Sports oversees the construction and design aspects of the project, Butler said. Butler manages the entire project — the design, finances, urban planning, and bringing all the parties together.

Butler said the process has been lengthy because the group wants the best plan before it moves forward on the construction phase.

"All of these pieces have to come together," Butler said."

Beth Musgrave: (859) 231-3205. Twitter: @HLCityhall.

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