Mayor Jim Gray said Tuesday that the city will reimburse coal counties the $2.5 million in coal severance funds that were used as seed money for the Rupp Arena renovation project.
Gray said in a news release that the city will make reimbursement of the funds, which were matched by the city to provide $5 million for planning the project, part of its overall financing plan for the arena.
"Coal severance funds are produced in coal counties and should be spent in coal counties," he said. "We have a solid, conservative financing plan for the Rupp project, and we will include reimbursement of the coal severance funds."
The mayor's announcement came a day after the state Senate approved a two-year state budget that did not include $65 million for the renovation of Rupp Arena.
Senate President Robert Stivers, R-Manchester, said Monday the Senate cut the bond money for Rupp from the budget because the project, which includes the expansion of an attached convention center, doesn't seem ready to move during the next two years.
Earlier this month, the House passed its version of the budget, which did include $65 million for Rupp.
The House and the Senate are expected to iron out a joint budget plan in a conference committee soon. The General Assembly must pass a budget by early next week or risk not being able to override a governor's veto.
Stivers laughed when he was told Tuesday about Gray's reimbursement of coal severance money to coalfield counties. Stivers said he was never aware of any agreement to repay the money.
Stivers also questioned Gray's request for a hotel tax increase in Lexington to fund the Rupp project. He said the city is coming to Frankfort for money when it has had budget surpluses the past two years, and it has a healthy rainy day fund. The Senate leader criticized Gray for presenting to the legislature a funding package involving a hotel tax so late in this year's legislative session.
Rep. Jesse Crenshaw, D-Lexington, filed a bill March 4 that would give the city authority to raise taxes on hotel and motel rooms by 2.5 percentage points to help pay for the renovation. The House passed the bill, HB 544, on Friday, but the Senate has not yet acted on the measure.
"I don't know how anyone can look at all this and say it was appropriately handled in this legislative session," said Stivers.
Sen. Brandon Smith, R-Hazard, who represents the coalfield region, said Tuesday afternoon that the coal severance money "couldn't come back to us at a better time."
"We in my area love the University of Kentucky, the kids particularly, and we're very proud of the team. In any other circumstances where we weren't facing double-digit unemployment figures, we would be glad to contribute to Rupp," Smith said. "But charity starts at home, and right now, those dollars are so precious to our counties."
House Speaker Greg Stumbo said in Gray's news release that he appreciates Gray's "honoring the commitment to repay the severance funds that were loaned to the city for the design phase of the project."
Gray emphasized the importance of the project.
"This is about jobs — 4,400 jobs over the course of construction, and 3,000 permanent jobs for Kentucky," he said. "We've heard from fans in 118 Kentucky counties. They want chair-back seats, improved technology, a better scoreboard and more amenities ... A lot of people are interested in seeing this project move forward."
Herald-Leader reporter Jack Brammer contributed to this story. Karla Ward: (859) 231-3314. Twitter: @HLCityhall